Key changes to the FRS102 Series - Part 5

Week 5: Other Notable Updates — What Else Changed (and Why It Matters)

After our overview (Week 1) and deep dives into revenue (Week 2), leases (Week 3), and fair value (Week 4), this week pulls together the remaining amendments into one practical guide. It also provides a printable checklist to help your team prepare.

What changed beyond the headlines?

Small & Micro Entities

• Micro (FRS 105): Exempt from on-balance sheet lease accounting but must apply the simplified five-step revenue recognition model.
• Small (Section 1A): Same recognition and measurement as FRS 102 reporters (revenue, leases, fair value), but with proportionate disclosure. Mandatory disclosures now include leases, revenue, going concern, related parties, share-based payments, and a statement of compliance with Section 1A.

Financial Instruments (Sections 11/12)

• No move yet to the expected credit loss (ECL) model. Impairment continues under the incurred loss model, triggered by evidence of a loss event.
• The option to adopt IAS 39 has been removed for new adopters. The FRS 102 basic vs other instruments framework remains.
• Entities applying IFRS 9 recognition and measurement by choice must make enhanced disclosures around credit risk and fair value inputs.

Business Combinations & Goodwill (Section 19)

• New guidance clarifies how to identify the acquirer in complex structures (newcos, common control, reverse takeovers). Typically, the entity transferring cash, assets, liabilities, or issuing equity is the acquirer. In some cases, the legal acquiree is treated as the acquirer for accounting purposes.
• Better distinction between contingent consideration and post-combination remuneration. Earnouts tied to continued employment usually count as staff costs, not purchase price.
• Goodwill remains amortised over its useful life, with a rebuttable presumption of 10 years or less if not reliably estimable.

Provisions & Income Taxes (Sections 21 & 29)

• Incorporates uncertain tax treatments: record tax based on the probable outcome, using either expected value or most likely amount.
• Provision guidance now aligns more closely with the Conceptual Framework. Recognition criteria remain unchanged: present obligation, probable outflow, and reliable estimate.

Employee Benefits (Section 28)

• No major changes. Clarified wording around plan assets and administration costs, with added emphasis on disclosures.

Share-based Payments (Section 26)

• No fundamental change. Still aligned with IFRS 2 principles. Section 2A fair value definitions do not override Section 26’s specific guidance.
• Clearer rules now cover cash settlement of equity awards and how vesting conditions affect the fair value of cash-settled payments.

Statement of Cash Flows (Section 7)

• Minor consequential edits. Ensure lease cash flows are split correctly: principal under financing, interest based on policy.

Who would this impact - and why?

Micro Entities (FRS 105)

• Apart from revenue recognition, day-to-day accounting stays largely unchanged. From 2025, revised size thresholds mean many companies previously classified as small may qualify as micro and adopt FRS 105.

Small Entities (Section 1A)

• Apply the same recognition and measurement rules as larger entities. Notes are fewer but add disclosures if omission would mislead. Pay close attention to contract reviews and fair value methods when material.

Medium & Large Private Entities

• Expect heavier compliance. Long-term contracts, lease portfolios, derivatives, and acquisitions all require more judgment and fuller disclosures in 2026.

Public Benefit Entities (PBEs)

• Apply the changes with PBE-specific nuances (e.g., concessionary lease rates). FRS 102 changes apply even if your sector’s SORP is not yet updated. The FRC standard takes precedence, with revised SORPs expected closer to the effective date.

Action implications in a nutshell

• Map where changes apply (revenue, leases, fair value, uncertain tax, business combinations).
• Refresh policies and internal manuals with updated terminology (control, performance obligations, ROU assets, exit price, market participants).
• Build transition papers documenting choices, expedients, and opening adjustments for board and audit files.
• Prepare 2026 disclosure shells early so year-end numbers can be slotted in quickly.