UK GAAP, the body of accounting standards published by the Financial Reporting Council (FRC), undergoes periodic review every five years, with major changes from the second periodic review published earlier this year – the Periodic Review 2024 amendments. 

ICAEW’s Corporate Reporting Faculty recently brought together representatives from the FRC and experts from practice to inform members about the changes and offer practical tips to support implementation. 

Chaired by Sally Baker, ICAEW’s Head of Corporate Reporting Strategy, the changes were introduced as “the most significant…since the introduction of new UK GAAP a decade ago”. 

The FRC’s Jenny Carter, Director of Accounting and Reporting Policy, and Stephen Maloney, Senior Project Director, provided an overview of key aspects of the changes. While there are numerous ones within the amendments, the changes to revenue recognition requirements (also applicable to those reporting under FRS 105 The Financial Reporting Standard applicable to Micro-Entities) and changes to lease accounting (FRS 102 reporters only) are the headlines. 

The benefits of the changes were highlighted, including realignment of UK GAAP with international accounting standards, improved access to capital, more understandable revenue requirements and better information about assets and liabilities on the balance sheet.

A key message was that businesses need to take care when determining which edition to apply of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. 

Just published, the September 2024 edition of FRS 102 includes amendments issued since January 2022 as well as the Periodic Review 2024 amendments. With most of the Periodic Review 2024 amendments having an effective date of 1 January 2026, entities will need to be clear what changes are applicable to the accounting period in question. 

Details of all the amendments are available on the FRC’s website. Additionally, the Corporate Reporting Faculty’s standards tracker helps you identify which version of the standard is applicable to a particular accounting period.

A comprehensive revenue standard with useful guidance

Danielle Stewart, Head of Financial Accounting Advisory at RSM UK, used real-life examples to give an insight into how entities can prepare for the new revenue recognition requirements.

She encouraged financial statement preparers to start collating existing and new revenue contracts for assessment under the new requirements, and suggested considering standardising future contracts to make this process easier in future. Preparers were also reminded that along with potential changes in recognising revenue, there may be changes to recognition of the associated costs – an area on which the new standard provides helpful guidance. 

A lease is a lease is a lease

Kathryn Donkersley, Technical Director at PwC, stressed the importance of determining whether a contract meets the definition of a lease in Section 20 of FRS 102 or is the provision of a service. She explained the factors to consider in making the distinction and highlighted some key challenges – including identifying and locating all lease contracts and applying measurement judgements. It was noted that the option to use an obtainable borrowing rate for discounting is a welcome simplification that makes FRS 102 easier to apply compared with its IFRS Accounting Standard counterpart. 

Donkersley encouraged entities to speak to their funding providers about any covenants relying on accounting figures and to manage stakeholder expectations around the likely impact of the changes on debt in the balance sheet.