March 28, 2024 FRC revises accounting standards
The Financial Reporting Council (FRC) has on 27 March 2024 released a revision of the UK and Ireland reporting standards: FRS 102. The revision, which the FRC calls ‘comprehensive’ will mainly apply to accounting periods beginning on or after 1 January 2026. The exceptions to this implementation date are:
- A new requirement transitioning FRS 103 requirements relating to insurance contracts into this new revision for reporting periods beginning on or after 1 January 2024.
- Requirements to disclose supplier finance arrangements which take effect for reporting periods beginning on or after 1 January 2025.
As with previous revisions to accounting standards, companies are able to opt for an earlier adoption date but only if all provisions are adopted at the same time.
It is estimated that current reporting standards apply to some 3.4million businesses. Accordingly, the revisions have been designed to be proportionate to the size and nature of individual businesses including micro-entities. Key changes include:
- New lease accounting requirements which it is expected will have an impact on the financial statements of most entities which operate with one or more leases. This includes the removal of the distinction between operating and finance leases for lessees.
- New revenue accounting requirements based on the five-step model for revenue recognition. This aims to provide clarification about the nature and timing of revenue payments due from differing contracts. According to the FRC, the impact which this will have will depend on the nature of customer contracts and will therefore vary across entities.
In drawing up these new guidelines the FRC has also taken the opportunity to provide greater clarity for small entities in respect of providing appropriate disclosures in order to paint a true and fair picture of the business. Fair value calculations, taxation, share-based payments, and specialised activities also come in for review.
Commenting on the revisions The FRC’s Executive Director of Regulatory Standards, Mark Babington, said: “Overall, the new amendments, alongside the removal of unnecessary reporting burdens, are expected to provide a net benefit to the UK and support better access to capital by UK corporates necessary to realise growth opportunities.”
The full guidance amounts to 291 pages although the FRC has also issued a handy three-page summary of the key changes. They also intend to release further guidance throughout the course of 2024 which should help businesses to prepare for the changes. If you are concerned about how any of the changes might affect your accounting procedures feel free to reach out to your usual contact.
