Although the Charity SORP sets out specific charity accounting requirements, it is based on Financial Reporting Standard 102, the key recognition and measurement aspects of which must continue to be complied with. In some cases, the SORP may not provide clarity on an aspect of accounting, and it may be necessary to refer back to FRS 102 itself for guidance. For both these reasons, it is important to have one eye on developments of FRS 102.
The Financial Reporting Council (“FRC”) commenced in March 2021 the next periodic (normally triennial) review of FRS 102 (and other UK and Ireland accounting standards). In December 2022, they issued an “Exposure Draft” of the what the proposed revised standard would look like, which is open to consultation from now until 30 April 2023.
The proposed reviewed standard continues the gradual assimilation with International Financial Reporting Standards (“IFRS”), and some of the key proposed changes are set out below:
Proposed changes to revenue recognition
A new income (revenue) recognition model is proposed based upon IFRS15 and the following 5 step recognition process:
1. Identification of a contract
2. Identification of promises
3. Allocation of a transaction price
4. Matching of the transaction price to the promises
5. Recognition of revenue based on fulfilment of promises
Changes to lease accounting
Perhaps the most significant change relates to IFRS 16 Leases, which requires more leases to be recognised as an asset and a liability than previously.
In most cases FRS102 will now remove the distinction between an operating lease and a finance lease in the financial statements of lessees. Apart from short term leases (a short-term lease is a lease that, at the date of commencement, has a term of 12 months or less), most leases will be recognised on the balance sheet as a “right of use” asset and an associated liability will also be shown at the inception of the lease. Entities will now be much more likely to recognise ‘off balance sheet’ leases, of which property leases are a common example.
Expanded disclosure requirements
Certain “encouraged” disclosures in FRS 102 section 1A (the reduced disclosure options) will become mandatory, including those related to:
- Being a “public benefit entity” where relevant
- Going concern
- Dividends paid or payable
Additional disclosures relating to the following:
- Leasing
- Revenue recognition
- More on provisions and
- Contingent liabilities
- Limited deferred tax disclosures
- Share based payments
Effective date of changes
The effective date for the revised standard is currently expected to be for accounting periods commencing on or after 1 January 2025.
Get in touch
If you have any questions on the FRS 102 development, please contact mail@ct.me.
