Key Changes in the 2022 Triennial Review of FRS 102: What Accountants Need to Know
Key Changes in the 2022 Triennial Review of FRS 102: What Accountants Need to Know
Blog Article
The Financial Reporting Council (FRC) published the 2022 Triennial Review of FRS 102 as part of its ongoing effort to align UK and Irish accounting standards with international practices, while keeping the needs of smaller and medium-sized entities in mind. As part of its commitment to relevance and clarity, the FRC periodically revisits FRS 102 to assess whether improvements or updates are required.
The 2022 review brought in a host of important changes, affecting areas such as revenue recognition, lease accounting, and presentation of financial statements. These revisions are particularly impactful for finance professionals, auditors, and accountants, who must now adapt their processes and advise clients accordingly. Many firms have already begun integrating the revised standards into their offerings, including tailored FRS 102 service packages that help businesses prepare for the transition.
Why Was the Review Necessary?
FRS 102 was first introduced in 2015 to replace the previous patchwork of UK GAAP standards with a single, streamlined accounting framework. Since then, the international accounting landscape has evolved significantly, particularly with the introduction of major IFRS updates such as IFRS 15 (Revenue from Contracts with Customers) and IFRS 16 (Leases).
The 2022 review represents the FRC’s effort to modernise FRS 102, reflect global best practices, and provide more decision-useful information to users of financial statements. At the same time, the revisions aim to maintain proportionality, so that the burden on smaller companies is not excessive.
Key Changes from the Review
1. Revenue Recognition – IFRS 15 Alignment
One of the most significant changes is the revised approach to revenue recognition. FRS 102 now mirrors the five-step model introduced by IFRS 15:
- Identify the contract with a customer
- Identify the performance obligations
- Determine the transaction price
- Allocate the transaction price
- Recognise revenue when (or as) performance obligations are satisfied
This model provides greater consistency and clarity, especially in complex or long-term contracts. Businesses must assess how revenue is recognised across different products or services and adapt systems accordingly.
2. Lease Accounting – IFRS 16 Influence
The updated FRS 102 introduces a single-lessee accounting model, echoing the approach of IFRS 16. Most leases must now be brought onto the balance sheet as a “right-of-use” asset with a corresponding lease liability.
This change improves transparency but also increases the complexity of financial reporting. Entities must now analyse existing lease agreements, calculate discounted liabilities, and report new asset categories.
3. Presentation of Financial Statements
While the basic structure of financial statements under FRS 102 remains, there are updates to terminology and layout expectations. The goal is to promote consistency in reporting formats across sectors and improve comparability.
For example, companies are now encouraged to use more descriptive headings, clarify subtotals, and disclose the nature of significant components within line items like “Other Operating Expenses.”
4. Impairment Testing and Financial Instruments
The updated FRS 102 enhances guidance on impairment reviews for non-financial assets. Entities must assess the recoverable amount based on updated value-in-use calculations and fair value models.
Additionally, refinements have been made to hedge accounting and classification of financial instruments, improving alignment with IFRS 9. Though these changes won’t affect all entities, companies with complex treasury operations or derivative use will need to pay close attention.
5. Transition Provisions
The FRC has provided transitional relief to help entities adjust. Businesses adopting the updated standards can apply modified retrospective application — meaning they don’t need to restate prior periods fully but must provide adequate disclosure explaining the transition.
These reliefs are designed to ease the administrative burden, but organisations are still advised to start planning early.
Practical Implementation Considerations
Implementation of the revised FRS 102 requires a strategic approach. Here are key actions businesses and their accountants should undertake:
- Review contracts and leases for revenue and lease recognition impacts
- Update internal controls and systems to reflect new accounting treatments
- Provide staff training on revised processes and standards
- Communicate changes to internal and external stakeholders
- Document judgments and assumptions made during implementation
Smaller companies, in particular, will benefit from step-by-step support and simplified guidance to manage these transitions efficiently.
Sector-Specific Impacts
Certain sectors will feel the effects more acutely. For example:
- Construction and engineering firms must evaluate complex performance obligations for long-term projects
- Retail and hospitality businesses will face substantial lease reporting changes due to store and property leases
- Technology and SaaS providers may need to reconfigure how they account for bundled services or subscription models
Accountants serving these sectors must deepen their understanding of both industry nuances and technical accounting updates.
The Role of Professional Advisors
With technical interpretations and transitional planning becoming more demanding, the role of UK GAAP advisors has never been more crucial. These professionals not only interpret the revised standards but also provide practical implementation strategies tailored to a business’s size and structure.
UK GAAP advisors can help entities:
- Translate the impact into actionable changes
- Develop revised financial templates
- Guide audit preparation under new standards
- Mitigate compliance risks
Partnering with experienced advisors ensures that businesses not only meet the regulatory requirements but also optimise their financial reporting outcomes.
Looking Ahead: Preparing Now for 2025
The revised FRS 102 is expected to become effective for accounting periods beginning on or after 1 January 2025, subject to final confirmation by the FRC. This timeline offers a valuable window for preparation.
Companies that act now will not only ensure a smooth transition but also uncover opportunities to improve financial reporting quality and internal processes.
The 2022 Triennial Review of FRS 102 marks a pivotal moment for UK and Irish accounting. By aligning more closely with international standards and enhancing financial statement clarity, the updates offer long-term benefits for businesses, users, and regulators alike.
However, the path to compliance involves more than just ticking boxes. It requires thoughtful planning, technical know-how, and often, support from dedicated professionals. With the right preparation — and the right FRS 102 service partners — accountants can lead their organisations or clients through the transition confidently and successfully.
Related Topics:
A Guide to FRS 102 Reduced Disclosure Framework Standards
FRS 102 Section 1A: Small Business Relief | Cost-Effective Compliance Guide
Small Business FRS 102 Advantages | Financial Reporting Made Simple
FRS 102 Small Entity Benefits | UK GAAP Simplified Reporting
Small Company FRS 102 Success | Practical Implementation Guide Report this page