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A decorator applying a fresh coat of paint| AccountingWEB| FRC updates UK and Ireland GAAP
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FRC updates UK and Ireland GAAP

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Steven Collings examines the accounting regulator’s recent shake-up of FRS 102 and explains what the changes mean for the quality of financial reporting in the UK.

9th Apr 2024
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On 27 March 2024, the Financial Reporting Council (FRC) issued the final amendments to UK and Ireland GAAP. The amendments primarily affect FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, but there are consequential amendments to other standards arising from this periodic review such as FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.

The FRC estimates that some 3.4 million businesses will be affected by the changes which are designed to enhance the quality of financial reporting in the UK. This article summarises some of the more notable changes arising from this periodic review. Further articles will be published in due course which will explore some of the accounting treatments that have changed as a result of the periodic review.

Headline changes

The two headline changes relate to lease accounting and revenue recognition. In terms of lease accounting, the changes only affect FRS 102 (not FRS 105). Amendments to revenue recognition affect both FRS 102 and FRS 105.

Leasing

The lease accounting amendments ensure that the most significant leases are recognised on the balance sheet. Essentially, the changes mean there will no longer be a distinction between a finance lease and an operating lease so most leases for lessees will be on-balance sheet. There are two exemptions to on-balance sheet recognition:

  • If the lease is a short-term lease; and
  • If the lease is for a low-value asset(s).

Short-term leases

A new definition of ‘short-term lease’ is included in the glossary to FRS 102 which confirms that a short-term lease is:

‘A lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease.’

Low-value assets

In the Exposure Draft, the FRC included examples of assets that would be considered to be of low value (such as tablets and personal computers). Following stakeholder feedback, the FRC has removed such examples and have only retained examples of underlying assets that would not be of low value in paragraph 20.11 which are:

  • Cars, vans, buses, coaches, trams, trucks and lorries;
  • Cranes, excavators, loaders and bulldozers;
  • Telehandlers and forklifts;
  • Tractors, harvesters and related attachments;
  • Boats and ships;
  • Railway rolling stock;
  • Aircraft and aero engines;
  • Land and buildings; and
  • Production line equipment.

The principles in FRS 102, Section 20 Leases are broadly aligned to those of IFRS® 16 Leases. IFRS 16 includes examples of assets that would be considered low value (e.g. tablet and personal computers, small items of office furniture and telephones). It would be acceptable to apply the recognition exemption to, at least, leases of such assets under FRS 102.

The FRC’s conclusion where low-value assets are concerned was to take a more permissive approach to defining low-value assets. To that end, Section 20 defines low-value assets in absolute terms as opposed to what is material to the lessee (FRS 102, para 20.9). An entity that wishes to set a threshold at a lower level (for example to be consistent with a group accounting policy) is able to.

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