Revenue recognition, lease accounting, systems, reporting processes and covenants may all need early attention.
Why this matters
The revised FRS 102 brings UK GAAP closer to international standards on revenue and leases. For many businesses this means revised judgements, new disclosures, changes to reported profit and movements in reported assets and liabilities.
What management teams should consider
- How revenue is currently recognised and where the new five step model changes the answer
- The population of operating leases that will need to be recognised on balance sheet
- Whether covenants, KPIs and incentive arrangements reference accounting measures that will change
- Capacity of finance systems to capture the data the new requirements need
- Timing of transition disclosures and comparative information
Common issues or warning signs
- Long term contracts where the new revenue model has not been assessed
- Property and equipment leases held outside the finance system
- Loan agreements that have not been reviewed against the new figures
- Reporting calendars that leave no time for technical accounting work
Practical steps
- Carry out an early impact assessment on revenue and lease populations
- Engage with lenders early if covenants are likely to move
- Update accounting policies, judgements and disclosures
- Agree responsibilities between finance, operations and legal for ongoing compliance
How Bracknwell Partners can help
We support boards and finance teams through technical accounting change. Our work covers impact assessment, policy drafting, transition disclosures, covenant analysis and management reporting alignment.