FRS 102 amendments - other changes

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

Further guidance is currently being written. In the meantime, members may wish to refer to this related guidance:

• Amendments under FRS 102 – a practical approach
• FRS 102 Amendments – Revenue recognition
• Periodic review of UK GAAP – FAQs

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.

This helpsheet focuses on the amendments introduced by this update other than those relating to revenue recognition, lease accounting, disclosure requirements for entities applying Section 1A and definitions, including fair value. These alterations are discussed in other guidance and therefore not covered here.

Statement of cash flows (Section 7)

This section has been updated both to reflect the consequences of the amendments to lease accounting and to introduce new disclosure requirements in relation to supplier finance arrangements. Please note that the disclosure amendments relating to supplier finance arrangements apply from 1 January 2025 – a year earlier than the application date for the rest of the amendments.

The Standard describes supplier finance arrangements as being characterised by finance providers offering to pay amounts an entity owes its suppliers and the entity agreeing to pay according to the terms and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These would typically include arrangements labelled as supply chain finance, payables finance or reverse factoring agreements.

The following disclosures are required where this type of arrangement is in place:

• The key terms and conditions of the arrangement and where there is more than one type of arrangement with dissimilar terms, these must be disclosed separately.
• The carrying amounts of financial liabilities, as at the reporting date, which are part of an arrangement and the line item(s) in the balance sheet where they are shown.
• As at the reporting date, the range of payment due dates for those items which are part of a supplier finance arrangement and for comparable trade creditors which are not part of such an arrangement.
• The type and effect of any non-cash changes to the carrying amounts of financial liabilities which are part of a supplier finance arrangement – for example this would include exchange differences.

As a result of the amendments to lease accounting, there may be changes to the classification of lease cash flows. For example, lessee cash outflows from operating leases would have previously been categorised as operating activities and cash outflows relating to finance leases would have been categorised as financing activities, however when applying the amendments, all cash outflows for lessees will now be categorised as financing activities, unless subject to the short-term or low value exemptions.

Financial instruments (Section 11 and 12)

There are a number of changes to be aware of with regard to financial instruments.

The option to elect to use the recognition and measurement provisions of IAS 39 (which applied before the issue of IFRS 9) has been restricted. This policy can now only be newly adopted where it would create consistency with consolidated financial statements that the entity is included in. For now, entities that have already adopted this accounting policy can continue to apply it.

The option to apply the recognition and measurement provisions in IFRS 9 is still available without restriction. Where this choice is made, additional disclosure requirements have been added by the amendments.

There is also an update to the scope of both financial instrument sections to clarify that assets and liabilities recognised as a result of applying the revenue recognition principles in section 23 are not within scope of Section 11 and 12 unless they are receivables.

Business combinations and goodwill (Section 19)

The amendments to FRS 102 for business combinations and goodwill have resulted in a new appendix, additional disclosure requirements and further guidance for two specific scenarios.

The new appendix provides more guidance on identifying the acquirer in a business combination, aimed at more complex situations where, for example, there are more than two combining entities, or a reverse acquisition where the legal acquiree may be the acquirer for accounting purposes. This is not anticipated to result in different outcomes compared with the previous version of the standard.

Additional disclosures are required for business combinations. These are:

• disclosing the primary reasons for the business combination and how control was achieved;
• the amount of non-controlling interest recognised at the acquisition date;
• details about contingent consideration arrangements and details of contingent liabilities not recognised because their fair value cannot be measured reliably (including complying with the requirements in s21.15 of FRS 102);

Additional guidance has been included for two further scenarios:

• Where the business acquired is a lessee – section 19.19A provides that the acquirer is not required to recognise right-of-use assets and lease liabilities where the lease term ends within 12 months of the acquisition or for which the underlying assets are of low value (in accordance with lease accounting).
• Section 19.11B provides clarification that where the acquisition includes remuneration for employees or former owners relating to their future service, it is not part of the cost of the business combination. Careful consideration of the facts and circumstances may be required in some situations to determine whether these amounts relate to future service.

Share-based payments (Section 26)

New guidance has been included in section 26.13A for settlements of equity-settled share-based payment transactions where the entity transfers cash (or other assets) as an alternative to the transfer of equity instruments – for example when the entity repurchases vested equity instruments from employees. The payment made should be deducted from equity up to the fair value of the equity instruments that would otherwise have been issued (as measured at the settlement or repurchase date), with any excess being recognised as an expense.

Additional detail has been included in section 26.14A to 26.14C for accounting for cash-settled share-based payment transactions, although we do not anticipate this would change the accounting under the previous version of the standard.

Income tax (Section 29)

Section 29.17A to 29.17C have been added to provide requirements in relation to uncertain tax treatments. These are defined as a tax treatment for which there is uncertainty over whether the relevant taxation authority will accept the tax treatment under tax law.

The entity must consider whether it is probable that the taxation authority will accept the uncertain tax treatment or not. In practice, this should be possible to establish based on discussions with any experts involved and the consideration of acceptance being ‘more likely than not’. If it is probable that the authority will accept the treatment, the entity shall account using that treatment; if it is not probable that it will be accepted, then the accounting must be based on either the most likely amount payable or the expected value.

Listed below are some further minor amendments to the Standard such as revised disclosure requirements or additional guidance. These are not anticipated to have a significant impact on the financial statements but nevertheless will require attention when transitioning to the amended standard:

• Going concern - additional disclosure confirming that management has considered all available information about the future (para 3.8A)
• Disclosure of dividends paid (in aggregate and per share) analysed by the different classes of share capital where applicable (para 6.3B)
• Accounting policies – clarification that accounting policies are material and therefore need to be disclosed if users of the accounts would need the information in order to understand other material information in the accounts – for example choices made from permitted choices in FRS 102, a policy developed in the absence of specific guidance in the Standard, or an area where there are significant judgements (para 8.5B)
• Change in accounting policy – where an entity changes its measurement of a class of biological assets and the related agricultural produce from the cost model to the fair value model, this is to be dealt with as a change in fair value prospectively, rather than under Section 10 which would have previously led to a retrospective adjustment (para 10.10B)
• Associates – additional guidance has been provided to assist with determining if significant influence exists, including guidance about potential voting rights (para 14.3A)
• Associates and joint ventures – additional guidance has been provided regarding impairment testing. This confirms that the carrying amount tested should include any financial instruments which in substance form part of the net investment (financial instruments for which settlement is neither planned nor likely to occur in the foreseeable future) (para 14.8A)
• Defined benefit pension schemes – there have been a number of changes to the disclosures relating to defined benefit plans (para 28.41)
• Related party transactions – commitments with related parties are required to be disclosed (para 33.9(b)).

The FRC has updated its suite of factsheets which members may find useful for additional guidance on the amendments - FRC Factsheets.

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.