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The 2024 periodic review of FRS 102 has introduced significant changes to UK GAAP. While both revenue recognition and lease accounting are prominent, it’s crucial not to overlook other important amendments.

Let’s explore these additional key changes:

Business combinations

The changes to FRS 102 include amendments to business combinations accounting, including determining whether earn-out arrangements form part of the cost of the acquisition, additional guidance on the identification of the acquirer and new disclosures including contingent consideration arrangements.  

The acquiring entity will need to assess the nature of contingent payments to determine whether these payments are in respect of the business combination or remuneration for future services, aligning with the principles of IFRS 3.   

For more complex business combinations, FRS 102 now incorporates guidance on identifying the acquirer, including newly formed entities to affect a business combination and reverse acquisitions. 

Concepts and pervasive principles, going concern and accounting policies

The concepts and principals of FRS 102 have been updated to align with the IASB’s 2018 Conceptual Framework for Financial Reporting.  

Whilst this is not anticipated to result in significant accounting differences, entities may find it helpful to refer to the revised definitions and concepts when creating new, or updating existing, accounting policies.   

The use of the going concern basis should be disclosed in the financial statements, along with the significant judgements made by management in their going concern assessment.   

In terms of accounting policies, entities will be required to disclose material, rather than significant accounting policies, with an emphasis on how the entity has applied the accounting requirements to their circumstances. There is guidance for management to determine whether accounting policy information is material. Additional guidance is also provided on accounting estimates.    

Entities should review their financial statements and update accounting policies to comply with these changes, in addition to disclosing significant judgements in their going concern assessment.  

Fair value measurement 

The amendments align FRS 102 with both the definition of fair value and the guidance on fair value measurement in IFRS 13. 

For liabilities, the valuation basis now requires own credit risk to be considered as part of non-performance risk, the latter being defined as the risk that an entity won’t fulfil an obligation. However, the fair value of a liability that is due on demand cannot be less than the amount payable on demand, discounted from the first date the amount could be required to be paid.

Also, the valuation basis now permits, rather than requires, the use of bid prices to assess the fair value of assets and ask prices to assess the fair value of liabilities. Therefore, if management believes that a mid-price more fairly represents the fair value of their assets and/or liabilities, then it will now be possible to adopt that approach in the annual accounts.

All entities with material assets or liabilities held at fair value will need to confirm whether their judgements and estimates remain appropriate and ensure that accounting policies are updated to reflect the revised requirements.   

Share-based payments

Key changes to share-based payment accounting under FRS 102 include scope changes relating to business combinations, accounting for share-based payment transactions with a choice of settlement and treatment of vesting conditions for cash-settled share-based payment transactions.   

Entities with share-based payment arrangements should review these to determine whether the amendments will impact the accounting treatment.  

Financial instruments

FRS 102 has removed the option to newly adopt the recognition and measurement requirements of IAS 39, except to align with consolidated financial statements which include the UK entity. Entities already applying the recognition and measurement requirements of IAS 39 can continue to do so.  

The amendments have also clarified the accounting treatment for dividend income received from investments in non-derivative financial instruments, with clear criteria on when these should be recognised in profit or loss.  

Classification of software

In line with IFRS, FRS 102 now provides guidance on whether software costs should be capitalised as tangible or intangible assets. If the software is essential to the functioning of an item of property, plant, or equipment (‘PPE’), its costs should be capitalised as part of that PPE. Otherwise, the cost should be capitalised as an intangible asset.

Supplier finance arrangements

Importantly, albeit rarely for typical FRS 102 preparers, the disclosure requirements for supplier finance arrangements are required from 1 January 2025, compared to 1 January 2026 for the remaining amendments to FRS 102.  

New disclosure requirements on supplier finance arrangements include the key terms and conditions of supplier finance arrangements, the carrying amount of liabilities and the range of payment due dates for liabilities, both under supplier finance arrangements and the comparable trade payables.  

Other amendments

Additional amendments to FRS 102 include:

• Requirement for changes in a parent’s controlling interest in a subsidiary that does not result in loss of control to be recognised in equity, with no change to goodwill.
• List of indicators that provide evidence of whether an investor has significant influence over investments in associates and guidance on impairment of investment in associates.
• Uncertain tax treatments 

Early preparation is the key to successful implementation   

We strongly recommend early preparation to ensure that your business is ready for the changes in UK GAAP. Entities should assess the impact of the changes on their financial statements, systems and processes and plan their stakeholder communications.     

Our team of accounting and financial reporting experts are here to support your business with the changes, including:

• GAAP impact assessments to help your team understand the amendments, quantify the changes and explain the impact to your key stakeholders.
• Prepare accounting papers to apply the new standard to your business.
• Prepare financial statements incorporating the new disclosure requirements. 

Please get in touch with Andy Ka, Danielle Stewart OBE, or your usual 91探花contact to discuss how we can help your business prepare for the changes to UK GAAP.