Key changes to FRS 102: How does this impact your business?
The Financial Reporting Council has announced significant changes to FRS 102 – referred to as the Periodic Review 2024 – bringing the reporting framework in line with IFRS.
Affecting how you record your assets versus liabilities, the Periodic Review includes changes to revenue recognition and lease accounting. This in turn might lead to banking, bonus and audit consequences. You should be aware of possible changes to your processes for budgeting and forecasting. Changes could significantly impact:
- Presentation of accounts – measurement as well as disclosures
- Timing of profits.
Small businesses will also need to check if they still qualify for small company provisions.
Impact of FRS 102 changes
Changes take effect for accounting periods beginning after 1 January 2026, with early adoption possible. The FRS 102 changes could affect your key performance metrics, such as:
- EBITDA
- Net debt
- Gearing ratios.
Assessments by third parties could affect loan covenants and negotiations for lending arrangements. Businesses acquiring or selling might see earn-out calculations change.
Distributable profits and employee bonuses may also be affected, which could result in issues around dividend payments. Additionally, the timing and amount of future tax payments might need to be altered.
While revenue recognition and lease accounting are the main focus, your business may also be impacted by the need to present more detail in your financial statements.
What should businesses be doing?
Your financial reporting will be affected, which will in turn affect your stakeholders and their expectations.
Internally, businesses should review their budgets and forecasts to prepare for the new financial reporting framework. Examine your accounting policies, key estimates and judgements to ensure compliance with the changes.
This might entail updating software, adapting current management information and planning for tax implications. New company size thresholds are effective from 6 April 2025 and might see you falling in or out of audit scope.
How we can help
As experienced accountants, we ensure your compliance with the updated FRS 102 reporting framework. We identify the impact on your specific business and how the changes will affect it, highlight accounting policy choices and advise you of additional disclosure requirements.
We guide you through the new revenue recognition and lease accounting. This involves analysing and reviewing contracts, assessing changes, calculating impact at transition date (and retrospectively, if elected) and ongoing support. Equally importantly, our financial reporting team works alongside our tax colleagues to assess the impact on current and deferred tax.
Additionally, we run tailored staff training to upskill your teams to streamline the transition process for your company. We remain on hand for any ongoing advice you need – such as ad hoc review of calculations and guidance on specific areas and accounting policies.
Contact us
The Periodic Review brings significant changes for small companies. It is crucial that you prepare fully for the new framework to avoid the risk of non-compliance.
We are already helping many small companies across all industries prepare for the updated FRS 102.
Contact us for a no-obligation discussion.
