Responding to a request by the Financial Reporting Council (FRC) for views to inform the upcoming periodic review of FRS 102, financial reporting experts at ICAEW say now is the right time to consider if and how IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases and IFRS 9 Financial Instruments might be brought into UK GAAP.

Sarah Dunn, a Technical Manager in ICAEW’s Financial Reporting Faculty, said: “In our response to the previous Triennial Review of FRS 102, we concluded it was not the right time to begin work on incorporating these IFRSs into UK GAAP. Five years on, we have the advantage of being able to learn any lessons from IFRS adopters and use this experience to adapt them appropriately for FRS 102.” 

Proportionality will be key when considering how the new IFRSs might be brought into FRS 102 due to the large variety of businesses in size and scope currently applying the standard. ICAEW notes there may not be a 'one-size-fits-all' solution in many cases and therefore careful consideration will need to be given to the impact on a whole spectrum of companies.

Any plans to introduce the IFRSs should allow enough time for the FRC to perform some field testing of the proposed changes. It will also be important to allow sufficient lead time before any change becomes effective to allow preparers time to get ready for transition. 

Bearing in mind the IASB is considering the potential introduction of the new IFRSs into the IFRS for SMEs, ICAEW also suggests the FRC waits for the outcomes from the IASB consultation before making decisions about the future direction of FRS 102. “The consequence may otherwise be that there are three different approaches to accounting for revenue and leases which may be undesirable in the wider reporting landscape,” ICAEW warns. 

FRS 102: working well but areas of improvement should be considered

Aside from considering the new IFRSs, ICAEW also considered existing FRS 102 requirements. Broadly speaking, it concluded that FRS 102 is working well in most areas but highlights several areas where narrow scope improvements might helpfully be considered. ICAEW also urges the FRC to take this opportunity to consider whether FRS 102 requirements are sufficient in dealing with emerging issues such as the accounting for climate-related matters and crypto assets/liabilities. 

Meanwhile, the post-Brexit era presents a perfect opportunity to review the financial reporting regime for the UK’s small companies and micro entities. While changes to UK company law are outside the remit of the FRC and beyond the scope of the forthcoming periodic review, ICAEW believes the FRC has an essential and influential role to play in ensuring that the UK small companies reporting regime is fit for purpose and advocating for any necessary changes to UK company law.

Indeed, ICAEW believes that setting out a vision for the future of small company reporting at this early stage may also help guide the FRC on key decisions within the forthcoming periodic review, for example, to help determine whether or not changes to FRS 102 should be replicated in FRS 105 The Financial Reporting Standard applicable to the Micro-Entities Regime.

“It may be that major changes coming out of this review process could be left out of FRS 105 to ensure that it remains a stable platform for those at the smallest end of the scale and who may have more limited resources and potentially little to be gained from changes,” ICAEW says. 

A copy of ICAEW’s response to the FRC can be found here: ICAEW representation 108/21 - FRC request for views to inform the periodic review of FRS 102.

Further Financial Reporting Faculty resources on UK GAAP can be found here: icaew.com/UKGAAP