FRED82: What is it and what does it mean for you and your business?
If you’re a business owner here in the UK or the Republic of Ireland, you may well have heard of ‘FRED82’ – but what exactly is it?
In short, FRED82 – the ‘Financial Reporting Exposure Draft’ – is an update to the UK accounting standard, FRS 102. The update introduces some new changes that are applicable to businesses, following the second periodic review of the FRS 102 and other Financial Reporting Standards.
Proposals include:
● A fresh model of review recognition in FRS 102 and FRS 105
● A new model of lease accounting in FRS 102, to align with international standards.
Alongside these changes, a wealth of improvements and clarifications have been proposed for both FRS 102 and FRS 105.
Let’s take a closer look at what’s in store for businesses…
Revenue from Contracts and Lease Accounting
FRED 82’s key goal is this: align FRS 102 with international standards. The focus is very much on IFRS 15 and IFRS 16, which look at revenue made from contracts, and lease accounting, respectively.
The final version of the standard is effective from 1 January 2026 – and it’s expected that this will apply to 31 December 2026 year-end onwards. Some shorter periods may also be caught, if they begin after 1 January 2026.
These changes might affect when revenue can be acknowledged, with FRS 102 taking on a simpler version of the five-step revenue recognition model, as laid out in IFRS 15.
Furthermore, businesses’ future operating lease commitments (property, plant, machinery, cars etc.) – which must currently be disclosed only in the notes to the financial statements – will now need to be included on businesses’ balance sheets. They will need to include a right-of-use asset and corresponding liability, and the profit and loss account will also be affected.
When are these updates expected to occur?
When adopted in 2026, they will be expected to be applied to comparative periods to provide a consistent view in the financial statements. This means businesses in the UK effectively have four months to get to grips with these changes and the impact they will have, particularly if they choose to adopt them early. Early application is permitted, provided that all the amendments are applied at the same time. Otherwise, the proposed effective date of the amendments, as set out in the FRED, is 1 January 2026.
The changes needn’t feel daunting…
“Whilst these sound like straightforward changes, the balance sheets of some businesses will look very different under the new regime.” Says Arnold Hill & Co’s Justin Moore. “Businesses will need to think about how long-term arrangements will be calculated; and the impact on funding agreements such as bank loans, and their respective covenants. It’s important to plan and have any necessary conversations and re-drafting now, rather than when a technical breach might have occurred.”
Partner with our team and these upcoming changes needn’t be daunting. Navigating these upcoming FRED82 updates together, we’ll be on hand to answer any of your questions and concerns.
Your day-to-day operations won’t be impacted, and you can begin to look ahead to a smooth and stress-free future for you and your business.
What are your next steps?
Have a question or two in the meantime? Do not hesitate to contact our team and we can better prepare you for the changes afoot.