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The upcoming changes to UK GAAP FRS 102 will see greater alignment with the principles in IFRS Accounting Standards. With the deadline approaching, we explore the key accounting changes that financial services businesses should focus on as they gear up to implement the revised standards for years commencing on or after 1 January 2026. Understanding and preparing for these changes is important for ensuring compliance with not only general financial reporting and the related impact on KPIs and covenants, but also compliance with capital adequacy and other regulatory reporting requirements.

What are the key changes to FRS 102 for financial services?

Despite the significance of the changes to FRS 102, financial services businesses are potentially less impacted than many other industries. Nevertheless, they should still carefully consider the future impact the amendments might have on internal processes and external reporting requirements. 

Leases

One of the most significant changes in the standard is the new leases model. Consistent with IFRS 16, the revisions introduce a largely ‘on balance sheet’ approach for all leases. The only exceptions that might apply are for short term leases and low value leases. Financial services businesses will have to recognise a right-of-use asset and a related lease liability, with depreciation and interest expense impacting profit and loss.

Businesses will have to reconsider KPIs that utilise operating profit or EBITDA. The additional liabilities might also strain balance sheets and businesses must assess how they impact covenants and regulatory capital requirements.

Fair Value

This revised chapter introduces a new framework for determining fair value and is broadly aligned with IFRS 13. The revisions provide much needed clarity and guidance on navigating the complexities when determining fair values. Although the core concepts will be familiar for most, the revisions might result in some changes when determining fair value and impact profit and loss accordingly.

The revisions do not explicitly introduce the concept of own credit risk and preparers should carefully consider the impact of own credit risk on fair value and its treatment.

Financial instruments

Unless an accounting policy choice was made prior to the effective date, financial services businesses will not be able to use IAS 39 rather than Sections 11 and 12. Where businesses elect to apply IFRS 9 for recognition and measurement purposes, the amendments introduce various new disclosure requirements.

Assessing impairment of financial assets remain the same. Businesses applying Sections 11 and 12 to financial instruments can also continue to use IAS 39 for macro hedging.

Other notable changes

Investments in associates: when considering the treatment of losses in excess of the investment in associates and assessing potential impairments, the amendments clarify that the carrying amount of the investment includes financial instruments that in substance form part of the investor’s net investment.

Revenue: the new framework introduces an IFRS 15 based model with a five step approach to recognise and measure revenue. We don’t expect the changes to have a major impact on financial services contracts except where other services are provided. Where this is the case, it will be necessary for those businesses to identify the contracts and the performance obligations within those contracts. This may lead to changes in the way revenue is recognised.

How we can help

We have a dedicated team of accounting and financial reporting experts, experienced in assessing and implementing accounting policy changes, with a wealth of experience in FRS 102 as well as the IFRS Accounting Standards on which the major proposed changes for leases and fair value 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 financial services company in more detail, please contact Paul Merris or your usual 91探花contact.