Take a look at our frequently asked questions below to find the answers you need.
What are the significant amendments to UK GAAP?
The most significant changes are to revenue recognition and lease accounting, aligning them more closely with IFRS 15 and IFRS 16 respectively.
Are there any other amendments?
Yes, there are several more minor changes and clarifications to UK GAAP, including:
- Greater clarity on disclosures required for small entities applying Section 1A of FRS 102 to ensure a true and fair view.
- Enhanced guidance on fair value measurement to reflect the principles under IFRS 13.
- Updates to FRS 102 concepts and principles to align with IASB’s 2018 Conceptual Framework.
- New disclosure requirements for supplier finance arrangements.
- Removal of the option to adopt recognition and measurement requirements of IAS 39 for financial instruments, except where necessary for consistency with group accounting policies.
When do these changes become effective?
Almost all amendments are effective for accounting periods beginning on or after 1 January 2026, with the exception of the new disclosures around supplier finance arrangements which are effective for periods commencing 1 January 2025.
Can I early adopt the new requirements now?
Yes, early adoption is permitted provided that all amendments are applied at the same time.
If I’m a small company will these changes impact me?
Yes, both revenue recognition and lease accounting changes will be applicable to small companies reporting under FRS 102 1A. Micro entities reporting under FRS 105 will also be impacted by the changes to revenue recognition.
Do all leases need to go on balance sheet?
Following the change to leases, the distinction between finance and operating leases is removed and instead a ‘right-of-use asset’ and corresponding liability is recognised on balance sheet, meaning most lessees with operating leases will be impacted.
There are two exemptions to this approach however, for short term leases (leases with a term of less than 12 months) and leases of low value assets.
There is a practical expedient on transition to the new lease accounting, whereby any leases with 12 months of less to run from the initial application date, can be treated as ‘short term’ and are exempt therefore from the above.
For low value assets, FRS 102 does not assign a monetary threshold for low-value and does not provide examples of what these are, instead it provides a list of examples of assets that are not considered to be low value, this includes certain assets such as cars, boats, land and buildings and aircrafts.
What are the changes to revenue recognition?
There is a new model of revenue recognition, based upon the five-step model for revenue recognition under IFRS 15.
The five-step model involves:
- Identifying the contract (or contracts) with a customer;
- Identifying the promises in the contract;
- Determining the transaction price;
- Allocating the transaction price to the promises in the contract; and
- Recognising revenue when (or as) the entity satisfies a promise.
The individual terms of an entity’s contracts with its customers will determine the impact this change will have on revenue recognition.
How do I transition to the new standard?
For leases, on transition, restatement of comparatives is not permitted, however any cumulative impact of initially applying the standard is recorded as an adjustment to opening retained earnings at the date of initial application.
As a practical expedient for a lessee that is already preparing IFRS 16 information for group reporting, they can, at the date of initial application recognise the IFRS 16 carrying amounts as its right of use asset and lease liability.
For revenue recognition, entities have a choice to either
- Apply the changes fully retrospectively, whereby comparatives are restated, or
- Apply a modified retrospective approach, where comparatives are not restated and instead you recognise any cumulative effect of initially applying the standard as an adjustment to opening retained earnings.
What practical changes should I prepare for?
The changes to UK GAAP are significant, and it is therefore important to start assessing and preparing for the impact of these changes early, to ensure the transition will be as smooth as possible.
As a practical point, you may want to begin by summarising and analysing all leases on a lease register including the lease term and future payments.
In addition, you should consider the impact these changes will have on contracts with customers and identify specific contract terms and performance obligations.
These changes may affect financial ratios, which could in turn impact loan covenants. Companies will also need to consider how they may influence performance metrics used in arrangements such as bonus structures and share option schemes
How can Menzies help me?
Our team can help support your business through the transition by:
- Assessing the impacts of these changes on your business and financial reporting.
- Preparing updated accounting memo/policies applying the new standard.
- Identifying and updating disclosure requirements to comply with the proposed changes.
If you need any further support or guidance, please do get in touch with us below:
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