FRS102 is set to undergo updates that will reshape financial reporting practices for many companies. These changes, primarily focused on enhancing transparency and consistency in financial statements, are scheduled to take effect from January 1, 2026, with specific provisions for supplier finance arrangements kicking in a year earlier, on January 1, 2025.
Effective Dates and Early Adoption
The bulk of the FRS 102 updates will be applicable for financial periods beginning on or after January 1, 2026. Thus financial statements for the year ending 31 December 2026 will be the first sets to apply the new standard. However, there is an exception concerning supplier finance arrangements, which will require adherence starting from January 1, 2025.
Companies have the option to adopt the changes earlier than the set dates. Early adoption could be particularly advantageous for subsidiaries of larger groups that prepare consolidated financial statements under International Financial Reporting Standards (IFRS), as it would minimise discrepancies between the FRS 102 and IFRS versions of accounts. However, if a company decides to early adopt, it must implement all amendments, not just select changes.
Transition Arrangements
Transitioning to the updated FRS 102 involves retrospective application, where companies will generally need to restate comparative account amounts to reflect the new standards. Nevertheless, there are notable exceptions to this rule, especially during the first year of applying the new standards regarding supplier finance arrangements and lease liabilities.
For supplier finance disclosures, companies are not required to provide comparative figures in the first year. This exemption gives businesses a grace period to adjust to the new disclosure requirements without the burden of restating previous years' data immediately. Similarly, lessees should not restate comparative lease information under the new rules, although lessors do not receive this concession. For the changes in revenue there is an accounting policy choice available to not restate comparative information.
Changes in Accounting Policy
The FRS 102 update mandates several changes in accounting policies, particularly affecting how leases, revenue and supplier finance arrangements are treated. Leases previously recognised off-balance sheet under operating leases will now need to be capitalised, meaning they appear on the balance sheet as right-of-use assets with corresponding liabilities. This shift aims to provide a more accurate representation of a company's financial commitments.
Additionally, the updates require detailed disclosures about changes in accounting policies, including the nature of the change and its financial impact per line item. In the first year of implementing the updated FRS 102, companies must include a note explaining the amendments related to lease accounting.
These disclosures are designed to enhance the clarity and comparability of financial statements, helping stakeholders better understand the implications of the new accounting treatments.
Companies should begin preparations well in advance of the effective dates to ensure a smooth transition, taking advantage of available resources and guidance to navigate the changes effectively.
This update was given by Lindsay Webber in the April CPD Club Monthly Update. This Monthly Update is exclusively available to our CPD Club Plus members and covers current issues and trends facing accountants. To find out more about becoming a member, please click here.
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.
