Changes to FRS 102 have been issued – don’t leave it too long to review and assess the impact

17 April 2024 - John Perry

In March 2024, the Financial Reporting Council (FRC) concluded its second periodic review of the Financial Reporting Standard (FRS 102) and issued amendments to FRS 102. Whilst the revisions will apply to financial periods beginning on or after 1 January 2026, early adoption is permitted. There is time to prepare, however, the impact could be significant for many businesses and an initial assessment of the implications should be done sooner rather than later.

John Perry, Audit Partner explores, the most notable areas of change for revenue and operating leases in our latest article. . The changes move the accounting to a basis more aligned to international accounting standards.

Revenue recognition

Going forward the recognition approach will be based upon a 5-step model applied by the international accounting standard (IFRS 15: Revenue from contracts with customers). Whilst each step may appear straightforward, there are several areas within each that may have impact and will require careful consideration:

Step Impact assessment will need to consider matters such as:
1.       Identify a contract with a customer.
  • The treatment of changes to the price or scope of a contract (for example do the modifications indicate a separate contract).
  • Contracts with the same customer entered into at or near the same time (and whether these should be combined).
2.       Identify the performance obligations in the contract.
  • Assessment of contracts that include a combination of goods or services that require unbundling.
  • The accounting treatment for any nonrefundable upfront fees in a contract.
3.       Determine the transaction price.
  • The treatment of factors that  could introduce variability into the ultimate pricing of contracts such as discounts, penalties, or performance bonuses.
  • The accounting treatment of sales with a right of return.
4.       Allocate transaction price to the performance obligations in the contract.
  • Allocation of discounts or other variable consideration to different elements of the contract.
  • The treatment of changes in transaction price (for example changes in discounts etc).
5.       Recognise revenue when or as the entity satisfies a performance obligation.
  • The impact of any customer acceptance clauses on the satisfaction or a performance obligation.

The standard will include some simplifications compared to IFRS 15 and therefore many organisations may see limited changes compared to the current approach. However, for others, such as those where the service supplied include several different performance obligations or a bundle of different goods or services, may see significant differences in the timing and amounts of revenue recognised over the period of a contract.


The new approach follows that of IFRS 16; Leases, and more leases will be recognised on balance sheet as the distinction between operating and finance leases has been removed.    The standard brings in a liability reflecting the obligation to make payments over the lease term and an associated right of use asset. The lease liability is discounted to reflect the time value of money with the rate of discount being based on the interest rate implicit in the lease. If this cannot be determined, the lessee can choose to apply their incremental borrowing rate or their obtainable borrowing rate. The income statement will see charges relating to the depreciation of the right of use asset and the interest element of payments.

There are exemptions available, but these are limited to short terms leases (12 months or less) and leases of low value assets. The standard includes example of underlying assets that would not be low value, this includes cars and buildings.

What is the wider impact?

As profits and net debt could be impacted by the new requirements an early assessment of the implications is key to allow proper planning and communication on matters such as:

  • The timing and amount of corporation tax payments.
  • Dividend policy and managing the expectations of shareholders given changes to the timing of revenue recognition could impact distributable reserves.
  • Remuneration strategies and whether revisions may be required to arrangements linked to financial performance (performance related pay, bonuses or share options).
  • Corporate transactions and what the impact could be on earn out agreements.
  • Covenants and the impact of changes to profits and net debt on the current headroom
  • Systems to ensure these can deal with the incoming changes, if nothing else it is likely that the existing chart of accounts would need to be updated and reviewed
  • Finance team readiness and the need for appropriate training to ensure that the new requirements are fully understood, not just the accounting but also the financial statement disclosure requirements.

Next steps

The implementation date may feel like it is some way off, however, the impacts need to be understood to enable appropriate implementation plans to be put in place and to ensure that the expectations of stakeholders are appropriately managed.

If you would like to discuss how these changes may affect  you, and what you need to do to prepare, do get in touch today to find out more. Email John Perry at or call 0330 058 6559.

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