This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members with practical tips on how to implement the amendments to FRS 102 introduced by the Periodic Review 2024.

Further guidance on specific areas of change is currently being written. In the meantime, members may wish to refer to related guidance:

• Periodic review of UK GAAP – FAQ’s

In March 2024 the FRC published its Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs Periodic Review 2024 (‘the amendments’) following its public consultation in FRED 82 issued in December 2022.

The majority of the amendments are mandatorily effective for accounting periods beginning on or after 1 January 2026, with early application permitted provided all amendments are applied at the same time.

Members in practice may wish to put together a staged plan to start actioning and preparing for these amendments. One suggested staged approach would be as follows:

• Stage 1 – Categorise clients according to the level of impact the amendments may have
• Stage 2 – Approach most significantly affected clients to initiate discussions
• Stage 3 – Approach remaining clients according to their assessed risk of possible impact

Stage 1

Members may wish to categorise their clients in relation to how significantly they will be impacted by the amendments in order to determine how far in advance they may wish to contact such clients.

The impact of the changes may be due to the possible effect of the amendments on reported results or position, or because of the volume of arrangements/transactions that the amendments apply to, or to a combination of both.

Based on the amendments published, the following table demonstrates what type of business will be affected and how significantly.

Specific guidance on the changes to revenue from contracts with customers and leases to assist members in considerations is currently being produced by the Technical Advisory Service and will be published soon.

Stage 2

It may be beneficial to approach clients in advance of the mandatory effective date of these amendments in order to plan practice activities, including training, and manage workloads. This early contact may involve helping clients to prepare for the amendments.

Whilst the mandatory effective date for most changes is not until periods beginning on or after 1 January 2026, the comparative periods to that effective date may need to be restated to ensure compliance with one of the fundamental principles in FRS 102, comparability. Even where exemptions exist under the transitional requirements (for example, for leases and as an accounting policy choice for revenue), opening balances of retained earnings at the date of initial application will need to be adjusted. As a result, information gathering may be required in order that the amendments can be applied to transactions arising from 1 January 2025 and to inform any adjustments required to opening retained earnings at 1 January 2026 (for financial years ended 31 December 2026).

The exact timing of contact will depend on the client, their reporting timetable and the impact of the changes that was considered in stage 1. For example, a client that is planning to retrospectively restate turnover, has a large volume of service contracts and a financial year ended 31 December would need to have information as of 1 January 2025. If the client does want to make any changes to the underlying contracts to achieve certain results when applying Section 23 Revenue from Contracts with Customers, discussions would be encouraged in 2024.

What to discuss with clients

Funding arrangements:

Many businesses may have funding arrangements, including bank loans, with financial covenants attached to them. Whilst changes to recognition and measurement principles will not change the operating effectiveness and cash flows of an entity, they will have a direct effect on any financial key performance indicators (KPI’s) that may form part of loan or other funding covenants.

Businesses may therefore wish to understand the impact the amendments will have on their financial performance and position in advance, in order for them to seek to renegotiate loan terms and covenants in advance of falling short of any KPI’s they are bound by, or arrange covenant waivers, as well as preparing investors for the changes in reported financials that may arise.

Gross profit margin, net profit margin, earnings before interest, tax, depreciation and amortisation (EBITDA), gearing, quick ratio and earnings per shares are just a few of the KPI’s that may be significantly affected by some of the amendments.

Information gathering:

The requirement to apply changes to comparative periods may be problematic if these considerations are only made at the end of the financial period to which the amendments become effective.

Therefore, it would be beneficial to start collating relevant information now, for example contracts with customers and lease agreements. This means contracts entered into between the current date and adoption date can be collected and reviewed in real time at the time they are entered into. Historic agreements, which may have been filed, or need to be re-requested if misplaced can be identified, located and reviewed without undue time pressure.

From a practice management perspective, clients may require some transitional accounting support and so you may wish to discuss a timetable of services with the client to ensure this can be accommodated. Transitional accounting will take more time than the usual annual accounts preparation services, meaning your usual timeline may not accommodate additional work if you have resource and/or time frame constraints.

This additional work, where requested by clients, will likely incur additional fees. Clients may therefore appreciate the cost of transition being discussed and negotiated early, perhaps to assist with client cash flows.

If you are auditing such a transition the challenge would be obtaining the sufficient and appropriate audit evidence over transactions, so again planning early and considering undertaking interim audit work, such as transactional testing, may assist with ensuring little to no impact on both audit timing and ultimately, audit opinions. However, as with accounts preparation engagements, there is likely to be an additional cost associated with auditing the transitional adjustments, so early discussions should be held with clients about this aspect too.

Disclosures:

There may be businesses, particularly small entities, that have been able to take advantage of many reduced disclosures previously.

The amendments specify additional required disclosures expected in order for financial statements to give a true and fair view.

The requirement for financial statements to show a true and fair view has not changed and these additional disclosures are expected to simplify the decision making process on which disclosures are/are not required.

Many small entities may already be providing these disclosures, but for those that are not it may be beneficial to draw clients attention to these early.

Stage 3

Having completed stages 1 and 2 already, the above approach would have prioritised contacting those clients who are most significantly affected by the amendments.

Other clients will likely still have some additional service and time/resource requirements, so it would still be beneficial to approach these clients if you were wishing to be able to provide such services as a firm. Your discussions with them could follow similar key points to the areas outlined in Stage 2.

As the firm may well have worked through some more complex or larger scale transitions under stage 1 and 2, it may be worth reflecting on these experiences to inform how the firm manages the transition process with other clients – what has worked well and where have there been issues, for example? Are there any learning points or practical issues that can be reflected on and shared with the team to ensure that transition is as efficient as possible?

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.