FRS 102 Overhaul: What the New Revenue and Lease Rules Mean for Your Business
Revenue changes
The revised FRS 102 adopts a five-step model for revenue recognition, closely aligned with IFRS 15.
The focus shifts from the traditional transfer of risks and rewards to the concept of performance obligations and the transfer of control.
Revenue implications
- While most businesses may see limited impact, those with more complex contracts may need to rethink how and when revenue is recognised
- Overall the new model is more prescriptive and detailed, reducing flexibility but increasing consistency
Lease changes
Virtually all leases will now be brought onto the balance sheet. Lease payments will be separated into depreciation and interest expense. Only short-term leases and low-value assets may qualify for exemption.
Lease implications
- The revised lease accounting requirements are expected to impact key financial indicators, including EBITDA, gearing ratios, and interest coverage
- Tax consequences may arise, particularly where tax follows the accounting treatment for leases
How to prepare?
- Reviewing lease and revenue contracts now to identify areas of impact
- Engaging expert support early is essential to navigating these fundamental changes in
- accounting standards
- Updating internal systems to ensure compatibility
- Training finance teams on revised models and terminology
How can we help?
To understand what these changes may mean for your business, please get in touch with the Simmons Gainsford team.
