How can life sciences businesses prepare for future changes to UK GAAP?

26 January 2024

In October 2023, the Financial Reporting Council (FRC) announced a delay to the publication and effective date of the future changes to UK GAAP from its periodic review. 

The revised suite of standards reflecting the second periodic review of UK GAAP is now expected to be issued in the first half of 2024 and implemented not before periods commencing on or after 1 January 2026, instead of 1 January 2025 as originally planned.

Understanding the delay

The delayed issue date has provided the FRC with more time as it considers over 50 responses to its consultation on the periodic review in FRED 82, including the RSM response issued in April 2023.

The FRC still expects the principles of IFRS alignment to apply to the major proposed changes to lease accounting and revenue recognition, however, the proposals are being fine-tuned to ensure the final amendments are proportionate and understandable. In addition, other areas are likely to differ in a number of respects from the proposals.

Whilst the postponement of the implementation date for the FRS 102 updates may be welcome news for entities who are facing significant challenges in the current environment, it is not a reason to relax or delay the preparation process.

Use the extra time wisely

It’s crucial for businesses to prepare in advance.

Businesses can start by reviewing existing accounting policies and systems and identifying any gaps or weaknesses that need to be addressed to implement the revised standards.

The final amendments to FRS 102 could result in changes to the timing of revenue recognition, as well as bringing leases on balance sheet for lessees, with consequential effects on leverage ratios, debt covenants, EBITDA, and tax position.

For the life sciences industry, known for its dynamic nature and continuous innovation, the delayed implementation date offers a chance to assess the impact of the revised standards on their financial statements, systems, and processes and to plan their communications with stakeholders, such as investors, lenders and employees.

Management should ensure that they have the information collated, and systems set up to capture all relevant information. This includes collating and analysing customer contracts for revenue recognition.

Strategic considerations

One of the key areas that life sciences businesses should focus on is how the revised standards will affect their contracts with customers.

Contracts in the life sciences industry are often long-term so existing contracts could be impacted even though the effective date for the final FRS 102 updates is at least two years away. Specifically, they will need to identify the obligations in their customer contracts and follow the new revenue recognition model to allocate the transaction price and recognise revenue over time or at a point in time. This may require more judgement and estimation than under the current UK GAAP and could result in changes to the profile of revenue recognition. In particular:

  • Collaborative arrangements are common during the research and development phase. Collaborative arrangements are challenging to analyse under the new regime. For example, it can be difficult to determine if, from an accounting perspective, contracts have a customer/supplier relationship (in the scope of the revenue changes), or a relationship between collaborators (not in the scope of the revenue changes).
  • Licences, including any sales or usage-based royalties, are also common. Special rules could apply to recognise revenue from the provision of a licence. Determining whether and how those rules apply could be complex.

The FRC's decision to delay the publication and effective date of the future changes to UK GAAP presents a strategic window of opportunity for the life sciences industry.

By proactively planning how and when you will undertake the process to identify and implement any changes for both your management information and the annual financial statements, and how you will explain the impact to your stakeholders, your business is best placed to adapt to the changes when they do arrive.

How we can help

We have a dedicated team of accounting and financial reporting experts, experienced in both UK GAAP, IFRS 15 and IFRS 16 on which the major proposed changes for revenue and leases are based.

We can help you understand the impact of the revised standards on your management information, financial statements, and business operations, providing practical guidance on how to implement them effectively and efficiently.

We can also help you plan your communications with your stakeholders and ensure that your financial statements are clear, transparent and compliant with the new requirements.

If you require any support or would like to discuss financial reporting for your life sciences business in more detail, please contact Jonathan Collins, Graham Bond or Laragh Jeanroy.


Graham Bond
Graham  Bond
Office Managing Partner, Chester and Liverpool, Co-Head of Life Sciences
Laragh Jeanroy
Office Managing Partner – Cambridge and Bury St Edmunds, Co-Lead of Life sciences
Graham Bond
Graham  Bond
Office Managing Partner, Chester and Liverpool, Co-Head of Life Sciences
Laragh Jeanroy
Office Managing Partner – Cambridge and Bury St Edmunds, Co-Lead of Life sciences