FRS 102 changes: is it time to consider IFRS?
The upcoming changes to FRS 102 are the most significant update to UK GAAP in more than a decade. New requirements for revenue recognition and lease accounting mean finance teams will need to assess their impact, complete contract reviews, calculate transition adjustments, update processes and reflect the changes in their reporting.
There is a bigger question, though. If your organisation is already investing time, cost and effort in these changes, is now the right moment to switch to full IFRS for a long-term option?
What do the FRS 102 changes mean for businesses?
The 2024 amendments bring FRS 102 much closer to IFRS, particularly for revenue recognition and leases. Many businesses will already be reviewing systems, controls, data and reporting processes.
For organisations that expect to move to IFRS in the future, this creates a natural decision point. Should they apply the amended FRS 102 requirements now and move to IFRS later, or make a single transition to IFRS?
IFRS will not be right for every business. However, boards and finance leaders would be wise to use this opportunity to assess whether their reporting basis supports the organisation’s future plans.
Why IFRS should be part of the conversation
For some businesses, IFRS is more than an accounting framework. It can support their future goals, giving them access to investment, funding and international growth.
IFRS is familiar to international investors, lenders and capital markets. It is widely used by listed companies and global groups, making it particularly relevant for organisations considering private equity investment, fundraising, overseas expansion or an initial public offering.
Businesses should consider IFRS in situations where:
- An IPO is a credible medium-term objective
- Existing or future private equity investment is anticipated
- The group operates internationally or is expanding overseas.
What are the benefits of moving straight to IFRS?
One transition, not two: implementing the FRS 102 amendments will not be a minor exercise. Finance teams will need to gather lease data, review contracts, update accounting policies and change financial reporting processes.
If switching to IFRS is likely in the medium term, moving straight away will avoid the cost, disruption and management time involved in two separate transitions.
Cleaner group reporting: many groups report under IFRS at parent level while subsidiaries continue to use FRS 102. This arrangement can create additional reconciliations, duplicate effort and cause unnecessary complexity in preparing the consolidation.
A single reporting basis can make group reporting cleaner, more consistent and easier to manage.
Better transaction readiness: for businesses considering an IPO, IFRS reporting that includes historical financial information is typically needed as part of the process. Private equity investors also commonly assess performance, leverage and covenant metrics using IFRS-based measures.
Adopting IFRS now can reduce the risk of needing to convert under tight deal timelines.
Greater comparability: although amended FRS 102 will be closer to IFRS, it will not be the same. There are differences in areas such as transition reliefs, disclosures and measurement requirements.
Adopting IFRS may ease reconciliation complexity and improve comparability with listed peers and international businesses.
Is IFRS right for everyone?
Not necessarily. For many privately owned businesses, amended FRS 102 may be the most proportionate and practical framework. It’s likely to be the sensible option where IPO plans are uncertain, ownership is largely UK-focused, or the business won’t need IFRS reporting for investors, lenders or group reporting.
The key is to make an informed choice. Amended FRS 102 may be the right answer, but businesses should weigh that decision against their future funding, ownership and growth plans.
Looking beyond compliance
The FRS 102 changes are more than a technical accounting update. They are a timely opportunity to decide whether FRS 102 remains the right reporting framework, or whether IFRS would better support your future plans.
To discuss whether FRS 102 or IFRS is the right framework for your business, and for support with GAAP changes more generally, please get in touch with Danielle Stewart OBE, Lou Ward or your usual RSM contact.