The benefits of early adoption of FRS 102 amends

The Financial Reporting Council (FRC) has introduced significant amendments to FRS 102 as part of its 2024 periodic review, effective for periods beginning on or after 1 January 2026. However, early adoption of these amendments is permitted.

Here, we explore why businesses, particularly those that are part of an international group, newly incorporated entities, or those considering future financing or ownership changes, may consider adopting the amendments early.

Why consider early adoption of the FRS 102 amendments?

1. Aligning with international standards

For entities that are part of international groups, the amendments to revenue and lease accounting under FRS 102 closer align UK GAAP to both IFRS and US GAAP. Early adoption of these amendments will likely reduce GAAP differences between the individual entity and the consolidated level. 

2. Streamlining for newly incorporated entities

For newly incorporated entities that have yet to prepare statutory financial statements, early adoption of FRS 102 amendments could make sense commercially and financially. By aligning with the standards from the outset, these entities would avoid having to undertake future impact assessment and process the associated GAAP adjustments once the amendments become mandatory. This would also avoid the associated costs of renegotiating contracts linked to financial statements. This proactive approach will enable finance teams to focus their efforts elsewhere in the business.   

3. Preparing for future financing

If your business is planning to seek financing, early adoption of FRS 102 amendments will provide a more stable basis for your reported financial position over the next 3 years. Understanding the impact that the changes to revenue recognition and lessee accounting have on your balance-sheet, income statement and key ratios is important when negotiating terms including covenants. Adopting the amendments early will ensure that these are factored into any new or additional external financing requirements, reducing the need to re-negotiate in the future when the amendments are mandatory.

4. Simplifying earn-out arrangements

Earn-out agreements are typically based on the GAAP in place at the date of the agreement. If the entity is anticipating a change in ownership in the next few years, early adoption of the amendments would eliminate the need to maintain accounting records under existing and amended UK GAAP for the purpose of determining earn-out arrangements.

Considering early adoption of FRS 102? What steps should you be taking now…

Adopting FRS 102 amendments early requires careful planning and execution.

The benefits of early adoption of the periodic review set out above should be considered against the various early adoption risks. These include a lack of comparability with competitors who don’t early adopt the FRS 102 amendments, and having sufficient time and resources available to successfully deliver the various aspects including considering the changes to accounting systems and controls, impact on distributable profits, and the impact on existing contracts, such as debt covenants and employee rewards in a shorter timeline.

To explore how we can help support your finance team through the early adoption process, contact Andy Ka, Danielle Stewart OBE, or your usual RSM contact.