Upcoming changes to FRS 102

On 27 March 2024, the FRC issued amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024. The effective date for most amendments is periods beginning on or after 1 January 2026^*, with early adoption permitted. These amendments seek to provide greater consistency and alignment to international accounting standards including:

• A new model for revenue recognition, aligned to IFRS 15: Revenue from Contracts with Customers, but with some simplifications;
• On balance sheet lease accounting for lessees, aligned to IFRS 16: Leases, but with certain practical exemptions; and
• Other modifications to fair value measurement, uncertain tax positions, business combinations, and a revised Section 2 aligned with IASB’s Conceptual Framework.

* The amendments for supplier finance arrangements will be effective from 1 January 2025.

The commercial impacts of the new requirements may be wide reaching, and include considering:

• How will the amendments affect key metrics, such as EBITDA, profit and net debt?
• Will any debt/pension covenants need to be reset if EBITDA/net debt is impacted?
• How will you amend current remuneration, bonus and share option schemes where reward is directly linked to financial performance?
• Will dividend payments be restricted if distributable reserves are impacted?

The standards will be effective for accounting periods beginning on or after 1 January 2026, and we would encourage companies to plan today for adopting these changes.

Performing an initial impact assessment is advised to understand the likely areas of impact for your financial statements, whether that be profit or loss or balance sheet. From that, calculations can be performed over the key areas impacted to understand the likely quantitative impact of transition ahead of a 1 January 2026 adoption date.

These amendments may require changes to systems and processes to be in place for 1 January 2026. This may involve updating charts of accounts, assessing system capabilities, and designing revised processes to ensure compliance.

Also, don’t forget the disclosure impact: the revenue recognition and lease changes will require increased disclosures in your financial statements from previous years; this will provide more information to the readers of your accounts, some of which may be sensitive around future revenue.

The amendments also introduce disclosure requirements for supplier finance arrangements, where a third-party finance provider pays an entity's supplier, and the entity repays the finance provider. Preparers will now need to disclose information, in aggregate, about supplier finance arrangements which will include key terms and conditions, carrying amounts of liabilities subject to the arrangements (and any effects of non-cash changes), and ranges of payment dates. Amendments relating to supplier finance arrangements are effective from accounting periods beginning on or after 1 January 2025 with early application being permitted. Comparative information is not required in the year of adoption.

KPMG’s Accounting Advisory Services team are on hand to support you with the transition. Our team of technical accountants has significant experience in accounting standard changes including the adoption of IFRS 15 and IFRS 16 for international standard adopters. Do please reach out if you require support or require further information.

Read “Upcoming changes to FRS 102” for further insight and get in touch if you’d like a conversation.