FRS 102 summer series - are you ready for change?

Amendments to FRS 102 introduce substantial changes that aim to enhance the quality of financial reporting by aligning key areas more closely with IFRS, including new revenue recognition and lease accounting models. This follows a periodic review of FRS 102 and related standards, which has prompted businesses to assess the practical implications of the updated requirements.

Consequential amendments have also been made across related financial reporting requirements, moving FRS 102 closer than ever to IFRS in a number of important areas.

What are the major changes to FRS 102?

The two headline changes are to:

1. revenue recognition – there is a new model based on IFRS 15’s five-step model, with appropriate simplifications. How entities will be impacted will depend on the form of their contracts with customers; and
2. lease accounting  – there is a new model for lease accounting, based on IFRS 16’s on-balance sheet model, with some simplifications. Many businesses that use operating leases will be impacted.

Other improvements and clarifications in the periodic review to FRS 102 include (but are not limited to):

• greater clarity for small entities applying Section 1A, regarding which disclosures need to be provided in order to give a true and fair view;
• revised Section 2 Concepts and Pervasive Principles to align with the IASB’s Conceptual Framework for Financial Reporting;
• new Section 2A Fair Value Measurement, replacing the Appendix to Section 2 and updated to reflect the principles of international standards;
• revisions to Section 7 Statement of Cash Flows, to include new disclosures for supplier finance arrangements that promote consistency with IFRS;
• additional guidance in Section 26 Share-Based Payments for specific situations, such as equity instruments issued as part of a business combination;
• additional guidance in Section 29 Income Tax on uncertain tax positions;
• various amendments to Section 34 Specialised Activities, such as agricultural activities, service concession arrangements, heritage assets and public benefit entity accounting; and
• additions and amendments to the defined terms in the glossary.

These changes should be considered alongside the broader impact of transition on policies, processes and stakeholder communication.

What hasn’t changed?

The amendments stop short of introducing every aspect of IFRS. For many preparers, that means there is still no full alignment with the expected credit loss model for financial asset impairment in IFRS 9, nor with IFRS 17 Insurance Contracts. Any such changes would be expected to form part of a future consultation.

When will the changes to FRS 102 become effective?

The effective date is for accounting periods commencing on or after 1 January 2026, with early application permitted.

What do FRS 102 changes mean for your business?

The amendments to FRS 102 should prompt businesses to assess both the technical accounting impact and the wider commercial implications of transition.

Undoubtedly, the most significant areas of focus will be revenue recognition and lease accounting given that changes may alter the timing of revenue, bring additional lease obligations onto the balance sheet, and increase the level of judgement, estimation and documentation required in preparing financial statements.

Changes to the timing of revenue recognition, as well as bringing leases on balance sheet, may also affect leverage ratios, debt covenants, EBITDA, and the tax position.

The amendments may also have broader commercial consequences. Businesses should review financing agreements, earn-out arrangements, bonus plans and other contracts that reference financial statement measures to determine whether the revised accounting outcomes could create unintended effects.

How do I prepare for FRS 102 changes?

Businesses should begin by identifying the contracts, data sources and accounting policies most likely to be affected and then assess whether existing finance processes and systems can support the revised reporting requirements.

Contract review

Preparation may include collecting, summarising and analysing all leases and revenue contracts, as well as understanding what contracts, such as lending and remuneration arrangements, are reliant on figures reported in the financial statements.

Scope and impact assessment 

Knowing what matters for the significant areas of focus will be key to a successful.

• Revenue recognition is likely to require particular attention. Entities will need to identify performance obligations within customer contracts, determine how transaction prices should be allocated, and assess whether additional disclosures or supporting analysis will be needed under the revised framework.
• Lease accounting may also require thorough consideration, particularly where businesses have a large population of property, equipment or vehicle leases. A complete and accurate lease inventory will be essential in determining what falls within scope and how the changes affect reported assets, liabilities and key performance metrics.

Data readiness

The information needed to apply the revised requirements may be more granular than under current reporting practices, which means some businesses may need enhancements to spreadsheets, finance systems or internal controls to capture the right data on a timely basis.

Communications plan 

Alongside the technical accounting work, businesses should consider transition planning and stakeholder communication. Management teams may need to explain the impact of the changes to lenders, investors, boards and other stakeholders, particularly where covenant calculations, remuneration arrangements or internal performance measures could be affected.

How do I prepare for FRS 102 changes?

RSM can guide you on your FRS 102 changes adoption plan before it impacts your financial reporting process. We are here to assist you by providing pragmatic and quality-led expertise in developing the adoption approach that is right for your business. From scoping assessments right through to reporting and quantifying measurement differences, our teams are ready to help you in this significant change your financial reporting.  

As part of our FRS 102 summer series, look out for further related content along with details of our upcoming webinar.  

Who should I contact at RSM?

If you would like further information about how the amendments to FRS 102 might impact your business, please contact Ronan Gilmartin, Karl McLaughlin, Adrian Harpur, Mark Carew, or your usual RSM Ireland contact.