Institute issues response to FRS 102 periodic review

Chartered Accountants Ireland has issued its response to the Financial Reporting Council’s (FRC) Exposure Draft Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs("FRED 82").

FRED 82 forms part of the periodic review of FRS 102 and other standards maintained by the FRC (such as FRS 105). The most significant changes proposed by the FRC in FRED 82 include proposals to change the Revenue and Leasing requirements in FRS 102 to an accounting regime similar to that in IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leasing respectively, both of which have been in effect at IFRS level for several years now.

Some of the key points raised by the Institute in its response include:

• The Institute conceptually agrees with the proposal to align lease accounting requirements in FRS 102 to reflect the on-balance sheet model from IFRS 16.
• The Institute recommended that smaller entities are given an additional three years to implement the proposed leasing amendments. This recommendation is in recognition of the increased compliance demands and reporting requirements which some smaller companies will be exposed to as a result of the changes, as well as the potential consequence that some companies will increase in size as a result of the change.
• The Institute has called for more guidance to be issued in defining the “obtainable borrowing rate” when accounting for leases and how this differs from the “incremental borrowing rate” under IFRS 16.
• While agreeing with the proposals to update sections 23 and 18 (Revenue) of FRS 102 and FRS 105 respectively, the Institute strongly recommended the inclusion of worked examples in an appendix to demonstrate the differentiating factors that may lead to changes in revenue recognition if the proposed amendments are adopted.
• The Institute highlighted some concerns regarding simplifications made to IFRS 15 principles in the proposed changes to FRS 102 and FRS 105, instead believing that these simplifications will add complexity to revenue recognition.

Following the closing of the invitation to comment period on 30 April, the FRC will now consider the responses received and are expected to publish the final amendments later this year. An effective date of 1 January 2025 has been proposed for the changes.