Posted On Dec 15th, 2022

The Financial Reporting Council (FRC) has published draft amendments to UK GAAP standards for comment. The consultation is open until the end of April 2023.

UK and Ireland accounting standards are subject to periodic reviews that take place at least every five years. The aim is to ensure that standards are up to date, reflect the latest developments in reporting and continue to require high-quality reporting from entities within their scope.  

The FRC has progressed with its latest review and is now seeking feedback on its draft amendments published in Financial Reporting Exposure Draft 82, 'Draft amendments to FRS 102 The Financial Reporting Standards applicable in UK and Republic of Ireland and other FRSs' (FRED 82). Although the main focus is on FRS 102, the Exposure Draft impacts the whole suite of UK GAAP standards.

As set out below, most of the key proposals in FRED 82 reflect recent changes in IFRS Accounting Standards.

Revenue recognition and lease accounting

FRED 82 proposes the introduction of a five-step model for revenue recognition in both FRS 102 and FRS 105 'The Financial Reporting Standard applicable to the Micro-entities Regime'. The model will be based on the requirements of IFRS 15 'Revenue from Contracts with Customers', but with simplifications aimed at ensuring the requirements remain cost-effective to apply.

Leasing requirements in FRS 102 are set to change significantly. An IFRS 16 'Leases'-based model has been proposed, requiring lessees to recognise all leases on the balance sheet, subject to limited exemptions. The FRC does not propose bringing this into FRS 105 and will permit micro-entities to continue applying the existing leasing model.  

FRED 82’s proposals to revise the accounting for revenue and leases represent a significant change for those preparing accounts under UK GAAP, says Sally Baker, Head of Corporate Reporting Policy. “ICAEW is a long-standing supporter of global alignment in accounting standards, but in a proportionate manner which reflects cost-benefit considerations for preparers and users. We’re pleased therefore that while changes are proposed that will bring consistency between UK GAAP and international reporting requirements, simplifications and exclusions are also proposed. We will be examining and debating the proposals in depth in the coming weeks and months, with these principles in mind.”

Other key proposals

In regard to financial instruments, the FRC proposes removing the option for entities to newly adopt the recognition requirements of IAS 39 'Financial Instruments: Recognition and Measurement'. However, those already applying this option may continue to do so for now. 

FRED 82 does not contain proposals to incorporate the expected credit loss model of financial asset impairment into FRS 102. Early feedback obtained from stakeholders suggested that the costs in implementing this model would likely outweigh the benefits. The case for change will continue to be monitored by the FRC. 

Other key amendments to FRS 102 include a new section on fair value measurement based on the principles of IFRS 13 'Fair Value Measurement', and revisions to the standard’s 'Concepts and Pervasive Principles'.

Small entities that apply Section 1A of FRS 102 are also set to be impacted as greater clarity on the disclosures required to give a true and fair view is proposed.   

Effective date

The intended effective date for the amendments is accounting periods beginning on or after 1 January 2025. Early adoption would be permitted provided all amendments are applied at the same time.

Next steps

ICAEW will be responding in detail to the FRC and will seek members’ views in the coming weeks. 

“With the start of the calendar year always being a particularly busy time for accountancy firms, we welcome the FRC’s decision to extend the comment period for these proposals beyond the normal three-month time frame,” says Laura Woods, Technical Manager in the Financial Reporting Faculty. “In formulating ICAEW’s response to the consultation, the Financial Reporting Faculty is keen to hear feedback directly from members, especially those in smaller businesses and practices.” 

Original Post: FRC seeks views on periodic review of UK GAAP