UK and Ireland accounting standards are subjected to periodic reviews that take place at least every five years. 

As part of the review process, the Financial Reporting Council (FRC):

• seeks initial views from stakeholders on areas that might be considered during the review, including comments and suggestions relating to existing requirements; 
• considers recent reporting developments, including new or emerging issues or transactions;
• publishes a Financial Reporting Exposure Draft (FRED) of the proposed amendments for public consultation; 
• reviews the feedback received after the public consultation and makes changes as appropriate; and
• publishes final revised standards. 

The reviews focus on FRS 102 The Financial Reporting Standard applicable in the UK and Republic Ireland (FRS 102), but other standards in the suite of UK GAAP standards are also considered. A separate review of FRS 101 Reduced Disclosure Framework takes place on an annual basis to enable the FRC to consider additional disclosure exemptions as IFRS Accounting Standards evolve.

With FRS 102 initially having been effective from 1 January 2015, the first periodic review was completed in December 2017. The related amendments became effective for accounting periods beginning on or after 1 January 2019. 

The second periodic review has now been concluded following a public consultation of the draft amendments to UK GAAP which included proposals affecting FRS 102, FRS 103 Insurance Contracts, FRS 104 Interim Financial Reporting and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. The final amendments were issued by the FRC in March 2024.

The aim of the periodic review is to ensure that financial reporting standards are up to date, reflect the latest developments in corporate reporting and continue to require high-quality reporting from entities within their scope.

The FRC aims for consistency with IFRS Accounting Standards but seeks to ensure that requirements are proportionate to the size and complexity of the entities applying the standards. The periodic review provides the FRC with an opportunity to assess the standards against its key objectives with the benefit of input from various stakeholders.

The FRC also aims to keep FRS 102 broadly stable between its comprehensive reviews and therefore reviews the standard on a periodic basis rather than continually issuing amendments.

There are two headline amendments related to revenue recognition and lease accounting.

Revenue recognition

The first significant amendment is the introduction of a single, comprehensive five-step model for revenue recognition in FRS 102 and FRS 105.

The model is based on the requirements of IFRS 15 Revenue from Contracts with Customers. Distinct goods or services promised to a customer will need to be identified, and the associated revenue will be recognised when an entity satisfies the obligation to transfer those goods or services to the customer.

Lease accounting

The second significant amendment to FRS 102 is the adoption of a new model for lease accounting by lessees, aligned with IFRS 16 Leases. Lessees will be required to recognise all leases on the balance sheet subject to limited exemptions relating to short-term and low-value leases.

This means that lessees will be required to recognise an asset reflecting their right to use the leased asset over the lease term and a lease liability reflecting the obligation to make the lease payments.

FRS 105 will maintain the existing lease accounting model which classifies leases as either operating or finance leases.

Yes, there are a range of other incremental improvements and clarifications made to FRS 102 and other standards, including:

• greater clarity for small entities that apply Section 1A Small Entities on the disclosures required to give a true and fair view;
• revisions to Section 2 Concepts and Pervasive Principles to reflect the IASB’s updated Conceptual Framework for Financial Reporting;
• a new section 2A Fair Value Measurement based on the principles of IFRS 13 Fair Value Measurement that replaces the current Appendix to Section 2;
• new disclosure requirements on supplier finance arrangements have been added to Section 7 Statement of Cash Flows, which have an earlier effective date of 1 January 2025;
• additional guidance within Section 29 Income Tax on the accounting for uncertain tax positions: and
• the removal of the option for entities to newly adopt the recognition requirements of IAS 39 Financial Instruments: Recognition and Measurement (unless needed for consistency in group accounting policies). However, those already applying IAS 39 may continue to do so.

No. While the main focus of the periodic review is on FRS 102, it impacts the whole suite of UK GAAP standards.

In particular, FRS 105 preparers are set to be significantly impacted by amendments to Section 18 Revenue reflecting a simplified version of the IFRS 15 five-step model for revenue recognition. Section 2 Concepts and Pervasive Principles has also been updated.

The amendments to the remaining FRSs are largely consequential amendments as a result of the key changes.

The FRC has confirmed its position to defer the decision about aligning FRS 102 with the expected credit loss model of IFRS 9 Financial Instruments. Additionally, consideration about if, and how, the FRSs are aligned to IFRS 17 Insurance Contracts has not been considered as part of this periodic review. Any changes in regard to either of these areas will be subject to future consultation.

The effective date for these amendments is accounting periods beginning on or after 1 January 2026, unless stated otherwise. Early adoption will be permitted provided all amendments are applied at the same time.