Over the past 18 months, much of the discussion surrounding the latest amendments to FRS 102 has focused on the new revenue recognition and lease accounting requirements for accounting periods starting on or after 1 January 2026. Given the focus on these headline changes, it would be easy to assume they are the only amendments businesses need to prepare for. However, several other changes could affect your disclosures, valuation methodologies and financial reporting processes, making it important to understand whether any action is required.
While not every business will be affected, the following changes could be relevant for many organisations:
- Fair Value Measurement
- Supplier finance arrangements
- Disclosure of material accounting policies
- Share-based payments
- Financial instruments
Fair Value Measurement
The update to FRS 102 includes substantially more guidance on the concept of fair value, which should aid companies when assessing the fair value of their assets and liabilities.
There are also changes to how liabilities are required to be valued, moving from a focus on what the entity expects to pay in settling a liability to the price which would be paid to transfer the liability to a market participant. The value should also take into consideration the entity’s own credit risk along with other non-performance risks.
For businesses that hold investments or financial instruments at fair value, the additional guidance should help improve consistency and comparability in valuations.
Supplier finance arrangements (effective from 1 January 2025)
As businesses continue to focus on cash flow management and working capital optimisation, supplier finance arrangements have become increasingly common. Historically, there has been no specific requirement to disclose their existence in a set of accounts. Now entities are required to disclose:
- the key terms of supplier finance arrangements
- the carrying value of liabilities held under these arrangements
- the payment dates of the liabilities
These new disclosures are intended to improve transparency and help readers to better understand the liabilities companies are committed to.
Material accounting policies
Companies will now only be required to disclose material accounting policy information rather than significant accounting policies.
This change is envisioned to reduce boilerplate disclosures and encourage companies to focus on disclosing how they have applied accounting policies, rather than simply stating the requirements of FRS 102.
This welcome change should make the financial statements more relevant and easier to navigate by focusing disclosures on policies that genuinely matter to understanding the business.
Share-based payments
Businesses operating employee share schemes or involved in acquisitions should review the changes carefully, as the amendments provide additional clarification around the treatment and disclosure of share-based payment arrangements.
These include clarification on how equity-settled share-based payments which are paid in cash should be treated, how to account for net-settlement features, and clarification on how market and non-market vesting conditions should be considered when valuing cash-settled share-based payments.
Amendments have also been made to Section 19 ‘Business combinations’ to clarify that transactions which remunerate staff for post combination services should not be included in the cost of the business combination. While this does not explicitly discuss share-based payment transactions, it is becoming increasingly common for staff and continuing shareholders to receive share-based payments as part of an acquisition. Care therefore needs to be taken when assessing the various elements of consideration.
For companies applying FRS 102 Section 1A disclosure exemptions, the amount of information needing to be disclosed for share-based payments is being increased.
Financial instruments
The amendments introduce a number of refinements to the requirements for financial instruments and bring FRS 102 more closely into line with international accounting standards in certain areas. For some organisations, particularly those with complex borrowing arrangements, investments or group financing structures, the changes may require a reassessment of existing accounting treatments.
We’re here to help
While revenue recognition and lease accounting may dominate discussions around the FRS 102 amendments, the changes highlighted above could be equally important depending on your business activities and reporting requirements. With the new requirements now in effect, businesses should assess which amendments apply to them and whether any changes to processes, disclosures or accounting treatments are required ahead of their next reporting cycle.
If you would like to discuss how the revised FRS 102 requirements could affect your organisation, please get in touch with your usual Azets adviser or our Technical Accounting & Valuations Team.