An outline of five key categories
FRED 82 proposes a number of changes resulting from the second periodic review of FRS 102 and other Financial Reporting Standards. The proposals include: a new model of revenue recognition in FRS 102 and FRS 105; a new model of lease accounting in FRS 102; and various other incremental improvements and clarifications.
The proposed effective date of the amendments set out in the FRED is 1 January 2025, with early application permitted, provided that all the amendments are applied at the same time. If an entity applies these amendments before 1 January 2025, it shall disclose that fact, unless it is a small entity in the Republic of Ireland, in which case it is encouraged to disclose that fact.
The key proposed amendments through FRED 82 can be broadly categorised as below:
1. Revenue (s23 of FRS 102 and s18 of FRS 105) recognition bringing in line with IFRS 15 Revenue from Contracts with Customers and it is proposed to change the title too. Draft FRED 82 reflects the principles of IFRS 15 Revenue from Contracts with Customers. Notably, the ‘five-step model’ approach to recognising revenue as follows:
Step 1 – Identify the contract(s) with a customer (paras 23.6 to 23.15)
Step 2 – Identify the promises in the contract (paras 23.16 to 23.40)
Step 3 – Determine the transaction price (paras 23.41 to 23.60C)
Step 4 – Allocate the transaction price to the promises in the contract (paras 23.61 to 23.74)
Step 5 – Recognise revenue when (or as) the entity satisfies a promise (paras 23.75 to 23.101)
Other points included within the revenue section of FRED 82 include:
It is also proposed that an entity applying FRS 102 will not be required to adjust the promised amount of consideration for the effects of the time value of money if the period between when the entity transfers the promised goods or services to the customer, and when the customer pays for those goods or services, is six months or less.
2. Leases (s20 of FRS 102) alignment with IFRS 16: on-balance sheet model developed to provide more faithful representation of leasing transactions and more useful information to users. There is no proposal to incorporate this change in FRS 105.
3. Conceptual framework change: a revised s2 of FRS 102 and FRS 105, updated to reflect the IASB’s Conceptual Framework for Financial Reporting, to bring consistency in accounting principles by all entities.
4. Fair value measurement: a new s2A of FRS 102 is inserted, replacing the Appendix to Section 2, providing more comprehensive guidance on fair value. Definition of fair value revised is now based on IFRS 13 definition.
5. Amendments in small entity disclosures: there are additional disclosures required which can be identified within Appendix C for UK entities, covering:
a. A small entity shall provide the disclosures relating to deferred tax set out in paragraphs 29.27(c), 29.27(e) and 29.27(f).
b. A small entity shall disclose dividends declared and paid or payable during the period as set out in paragraph 6.5(b).
c. On first-time adoption of this FRS a small entity shall provide an explanation of how the transition has affected its financial position and financial performance as set out in paragraph 35.13.
d. A small entity shall provide the disclosures relating to material uncertainties related to events or conditions that may cast significant doubt upon the small entity’s ability to continue as a going concern as set out in paragraph 3.9.
e. There is no change in requirement to give a true and fair view or legally required minimum disclosures (Appendix C).
f. There is no longer any ‘encouraged’ disclosures (Appendix E).
g. There are no disclosure changes in section 1A for entities registered in Republic of Ireland.
As highlighted, ACCA would support field testing some of the proposals with SMEs, their auditors and users of their financial statements in order to identify implementation challenges. For example, we expect the proposals for the ‘on-balance sheet model’ from IFRS 16 Leases and the five-step revenue recognition model proposals to be more difficult to implement.
The FRC website has detailed guidance including questions and answers on these proposed changes and its implementation.