FRS 102: 2021 and beyond

11 May 2021

The Financial Reporting Council (FRC) launched its next mandatory review of FRS 102 aimed at improving and clarifying this financial reporting standard.

To look ahead at what could potentially come, and find out how you can prepare, we sat down with Financial Reporting Partner Danielle Stewart OBE.

What changes could we see through consultation?

Generally, FRS 102 (and its sister standards) work well, however, there are a few areas where improvements could be explored.

Coronavirus has placed increased scrutiny on Section 24 Government Grants. Section 24 provides an accounting policy choice between the 'accruals' and ‘performance’ models. The equivalent international standard on government grants (IAS 20) only outlines one approach, effectively the accruals model, plus the principle that grants with performance conditions attached should not be recognised until there is reasonable assurance those conditions will be met. Conversely, FRS 102’s performance model requires government grants without performance conditions to be ‘recognised on receipt’. This can lead to inconsistent and counterintuitive reporting, so Section 24 should be aligned to be more consistent with IAS 20.

Another area that could be reviewed is Section 35’s transition to FRS 102. Section 35 was written with the initial application of FRS 102 in mind and requires the adoption of a fully retrospective approach. The application of recent new IFRS has tended towards the non-restatement of prior periods - the cumulative catch up or modified retrospective approach. It could be sensible to allow this approach as an option, where appropriate, in Section 35.

What impact will Brexit have on UK GAAP?

With the UK having now exited the EU, certain statutory instruments will be enforced which will change the way IFRS is adopted in the UK. This will result in the incorporation of some new language but, aside from this, Brexit itself isn’t expected to have much short-term impact. You can read more in our article: Brexit – amendments to UK GAAP.

Once the UK is no longer regulated by European accounting standards, more changes could be made. For example, FRS 102 Section 1A ‘Small Entities’ was created due to a change in accounting directives permitting small companies to use a reduced disclosure regime, requiring member states to implement the directive verbatim. The reduced disclosures in S1A never seemed to have any logic to them, and so, despite the fact that UK reporters have got used to them, it would make sense to review them again.

Will there be changes in more targeted areas?

There are likely to be more niche changes arising through consultation, for example the challenges of accounting for share-based payments by private companies and the agricultural provisions of Section 34 ‘Specialised Activities’.

Will FRS 102 be changing in line with IFRS?

It is likely that the upcoming periodic review of FRS 102 will concentrate on incorporating  developments in International Financial Reporting Standards (IFRS) which have come into effect over the last three years. A major change has been the introduction and implementation of IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue’ and IFRS 16 ‘Leases’. It is expected that these will be incorporated with less detailed requirements and simplified disclosures, but only minor changes in measurement.

Will FRS 102 follow changes made in the recent review of IFRS for SME's?

FRS 102 was originally based on IFRS for SME’s, so it’s safe to say that IFRS’s recent update is likely to influence the FRC’s approach to updating UK GAAP. However, the IFRS for SME’s was originally founded on the UK Financial Reporting Council’s standard for smaller entities (the FRSSE). The UK is historically a leader in financial reporting standards rather than a follower, so while it is helpful to observe how the IASB is performing, the UK isn’t obliged to follow suit.

How will FRS 105 change?

Another advantage for the UK is the independent micro company standard, FRS 105, The financial reporting standard that applies to the Micro-entities’ regime. While this was brought about due to our EU membership, there doesn’t seem to be any appetite to remove it at present. What is great about this standard is we can save the smallest businesses from any changes that might be a bit too complex for their sector, as it minimises both accounting policy choices and disclosures.

Now that the UK has exited the EU and can set its own limits, we may see more companies included within the regime eg  financial thresholds set at 10 per cent of the small company thresholds (£1m turnover, £500k gross assets). In addition, to make the accounts more accessible for lending decision makers, formats may be aligned to small company formats eg by including gross profit on the income statement, or including a breakdown of the balance sheet items in the notes.

What can businesses do to prepare for future changes?

As we found with the transition to FRS 102, the single most important aspect is to ensure any contracts that refer to your financial statements (eg banking covenants, profit related pay, and share based payments) are future proofed so that they refer to the new conditions in current UK GAAP.

The second aspect is to keep a watching brief on the proposed amendments. If revenue and leasing are included in the changes, consider your new leasing and revenue contracts to ensure the accounting outcome meets your needs. Once the changes are finalised, you can model the impact on existing contracts, before managing stakeholder expectations.

What are the next steps and when will the changes take effect?

We are still at early stages but we expect a consultation draft in 2022, with changes effective from 1 January 2024. At this stage the FRC are inviting comments on areas they should include in the periodic review. You can help influence the consultation content by emailing the FRC direct at

Our financial reporting team will continue to monitor developments and respond as appropriate to future consultations.

If you have any questions on any of the areas discussed above, please get in touch with Danielle Stewart OBE.

Danielle Stewart
Danielle Stewart OBE
Partner, Head of financial accounting advisory specialists
Danielle Stewart
Danielle Stewart OBE
Partner, Head of financial accounting advisory specialists