In March this year, the updated version of the Financial Reporting Standard 102 (FRS102) was released. Most of the amendments will be effective for accounting periods on or after 1 January 2026, with an allowance for early adoption.
What is the FRS102?
The purpose of the Financial Reporting Standard applicable in the UK and Republic of Ireland is to protect the public interest by establishing standards that should be followed for financial reporting and auditing and holding those accountable for delivering them.
What are some of the key changes for charities?
Leases
The new section 20 on leases includes the removal of the distinction between operating and financial leases with confirmation that all leases now need to be recognised on the balance sheet, with exemptions for short-term leases and low value assets.
Revenue
Section 23, Revenue, has been retitled to Revenue from Contracts with Customers, and introduces a five-step revenue recognition model that is based on IFRS 15: Revenue from Contracts with Customers. This model aims to eliminate any weaknesses in the previous model and offer a framework for those users of financial statements.
Donated goods
The revised FRS102 also clarifies circumstances whereby it may not be practical to estimate the value of resources e.g. in the case of reselling second-hand goods which are likely high volume and low value. In this case, the income generated will be recognised in the financial period when the goods are sold or distributed, allowing for donated resources to be acknowledged upon sale or distribution, without having to include them as stock at year end.
Legacies
A further change refers to donations in the form of legacies. It states that these types of donations will be recognised when it is credible that the legacy will be received, and its value can be measured accurately. This recognition may be influenced by events such as valuations and disputes.
What’s the next step?
It is crucial that charities take a proactive approach and ensure they have plans in place to ensure they are prepared for the changes highlighted above. Now that FRS 102 has been finalised, the new Charity SORP has been issued for consultation and will be subject to a 3-month consultation period. We will keep you updated on the outcome of this consultation.
How can the PM+M team help you?
The PM+M team can help you understand the updated changes to the Financial Reporting Standard, and help you prepare for when the changes come into force.
Contact PM+M charity specialist, and audit partner, Ceri Dixon, by clicking the button below.
