In March 2024, the Financial Reporting Council (FRC) announced comprehensive changes to financial reporting standard (FRS 102) applicable to UK and Ireland.

The amendments to the financial reporting standard are effective, in most cases, for accounting periods on or after 1 January 2026, with early adoption permitted. However, we recommend our clients consider if and how these changes will impact them as soon as possible.  

Key revisions

The revised standards address various aspects of the standard, however, two key changes impact revenue recognition and lease accounting.

• Revenue recognition: The standard will now align with recent changes in International Reporting Standards (IFRS 15) which introduces a five-step plan to be considered when assessing revenue recognition, albeit in a simplified model.  
• Lease accounting: The standard will also align with IFRS 16 which may result in operating leases, previously recognised in the profit and loss (or statement of comprehensive income), now being capitalised and disclosed in the balance sheet of a company.  
   

Other revisions

In addition, some other notable improvements are as follows: 

• greater clarity for small entities applying Section 1A, regarding the disclosures which need to be provided in order to give a true and fair view; 
• revisions to Section 2 of the standard (Concepts and Pervasive Principles) which will help align the standard with the IASB’s Conceptual Framework for Financial Reporting;
• new Section 2A Fair Value Measurement, replacing the Appendix to Section 2 and updated to reflect the principles of international standards;
• revisions to Section 7 Statement of Cash Flows, to include new disclosures for supplier finance arrangements that promote consistency with IFRS;
• additional guidance in Section 26 Share-Based Payments for specific situations, such as equity instruments issued as part of a business combination;
• additional guidance in Section 29 Income Tax on uncertain tax positions;
• various amendments to Section 34 Specialised Activities, such as agricultural activities, service concession arrangements, heritage assets and public benefit entity accounting; and
• additions and amendments to the defined terms in the glossary.
   

RSM Ireland Insights 

Commenting on the impact of the upcoming changes to FRS 102, RSM Ireland Consulting Partner Karl McLaughlin said: “the revision to FRS 102 and the standards alignment with international financial reporting standards will ensure our client’s discussions with potential investors are more effective. The FRC has also been very pragmatic in its approach by ensuring there is a simplified model for the key revisions which will accommodate alignment with the IFRS, without being too onerous.” 

That said, RSM Ireland Audit Partner, Ronan Gilmartin cautioned “like what IFRS preparers experienced in recent years when revising Revenue and Lease accounting policies, recognition and measurement differences have the potential to significantly change an entity’s bottom line, which in turn may impact important agreements such as debt covenants and bonus arrangements. Ultimately, the extent of change will be specific to each business, and given the devil is in the detail, early consideration is key.” 
 

Conclusion 

The changes as announced by FRC will harmonise the accounting treatments adopted by small and medium sized enterprises to the larger corporates reporting under IFRS.  
 

For some clients, there will be no impact to their financial information, but a detailed review will be required for clients to come to this conclusion comfortably and reliably.