How amendments in financial reporting standards will impact Irish SMEs

Considering the prevalence of IFRS internationally, the proposals will be good news for FRS 102 users with an international focus.

In brief

• Most of the key proposals in FRED 82 reflect recent change in International Financial Reporting Standards (IFRS) and proposed changes to IFRS for SMEs.
• Some key amendments to FRS 102 include a new section on fair value measurement based on the principles of IFRS 13 Fair Value Measurement, and revisions to the standard’s Concepts and Pervasive Principles.
• The Financial Reporting Council proposes that the amendments will be effective from 1 January 2025.

Aperiodic review of “FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland” (FRS 102) is undertaken every five years. This is to ensure high quality reporting from concerned entities.

Since the Financial Reporting Council (FRC) introduced FRS 102 almost a decade ago, this standard has provided its users, primarily small and mid-size enterprises (SMEs), with a stable financial reporting platform.

The first periodic review in 2017 - 2019 made modest changes to the standard. However, the second periodic review which commenced in March 2021 is shaping up to be a much more ambitious exercise and one that FRS 102 users would be wise to watch closely.

On 15 December 2022, the FRC published draft amendments to FRS 102 in “Financial Reporting Exposure Draft 82 Draft amendments to FRS 102 The Financial Reporting Standards applicable in the UK and Republic of Ireland and other FRSs” (FRED 82). Although the focus is on FRS 102, the Exposure Draft impacts the whole suite of UK GAAP standards, including FRS 105 and FRS 101.

What is changing?

Most of the key proposals in FRED 82 reflect recent change in International Financial Reporting Standards (IFRS) and proposed changes to IFRS for SMEs. Notably, this includes alignment with the IFRS revenue recognition and lease accounting models with simplifications aimed at ensuring the requirements remain cost effective to apply.

These proposals are intended to promote comparability between the financial statements of companies in the UK and Ireland. Considering the prevalence of IFRS internationally, and the relative alignment between IFRS and US GAAP on these topics, the proposals will be good news for FRS 102 users with an international focus.

FRED 82 does not propose to align with the IFRS model for bad debt provisioning, the expected credit loss (ECL) model due to unfavourable feedback from a consultation process in 2021 - 2022.

Other key amendments to FRS 102 include a new section on fair value measurement based on the principles of IFRS 13 Fair Value Measurement, and revisions to the standard’s Concepts and Pervasive Principles.

What are the next steps?

The FRC has requested comments on FRED 82 by 30 April 2023, and will consider the feedback in finalising the amendments. The FRC proposes that the amendments will be effective from 1 January 2025.