Significant differences between FRS 102 and the IFRS for SMEs Accounting Standard

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Introduction

The requirements in FRS 102 are based on the IASB’s IFRS for SMEs Accounting Standard, with some significant amendments made for application in the UK and Republic of Ireland. The following table outlines these significant amendments; more minor amendments are not included.

The following table explains how sections and paragraphs of FRS 102 differ significantly from the IFRS for SMEs Accounting Standard and is based on the Third Edition of the IFRS for SMEs Accounting Standard and the current edition of FRS 102. It may be necessary to refer to the specific section or paragraph of the standard as appropriate. This page was last updated in February 2026.

Section 1 Scope

This section of the IFRS for SMEs Accounting Standard has been replaced. FRS 100 Application of Financial Reporting Requirements sets out the scope of entities applying FRS 102.

Paragraphs 1.4 to 1.7 require certain entities to apply IAS 33 Earnings per Share, IFRS 8 Operating Segments, IFRS 6 Exploration for and Evaluation of Mineral Resources, or FRS 103 Insurance Contracts.

Paragraphs 1.8 to 1.13 include an optional reporting regime for entities that are part of a group and included in the group’s consolidated financial statements. Such ‘qualifying entities’ are required to apply the recognition and measurement requirements of FRS 102, but are permitted to take advantage of certain disclosure exemptions.

Paragraphs 1.14 onward explain the effective dates and transitional arrangements for amendments that have been made to FRS 102. These replace Appendix A Effective date and transition to the IFRS for SMEs Accounting Standard.

Section 1A Small Entities

This section has been inserted to set out the information that is to be presented and disclosed in the financial statements of a small entity, taking account of the legal framework for small companies. There is no equivalent in the IFRS for SMEs Accounting Standard.

Section 2 Concepts and Pervasive Principles

This section and Section 2 of the IFRS for SMEs Accounting Standard are both based on the IASB’s Conceptual Framework for Financial Reporting (2018). However, this section was not directly based on the IFRS for SMEs Accounting Standard and, as a consequence, some of the language and phrasing used is different.

This section does not include the guidance on undue cost or effort exemptions as these are not included in FRS 102.

Section 2A Fair Value Measurement

This section and Section 12 of the IFRS for SMEs Accounting Standard are both based on IFRS 13 Fair Value Measurement. This section was based on the proposals in IASB/ED/2022/1 Draft third edition of the IFRS for SMEs Accounting Standard with the further modifications set out below.

Paragraphs 2A.13 and 2A.14 are inserted to clarify how to apply the requirements to financial liabilities.

Paragraph 2A.15 is amended to require a methodology for estimating fair value that is derived from company law.

This section does not require all entities to apply a fair value hierarchy to categorise the inputs to valuation techniques used to measure fair value into three levels, or require entities to disclose information about each level (paragraphs 12.22 to 12.32 of the IFRS for SMEs Accounting Standard). However, financial institutions and retirement benefit plans are required to categorise inputs and disclose an analysis of the level into which fair value measurements are categorised (see Section 34 Specialised Activities).

This section does not include an overarching requirement to disclose, for each class of assets and liabilities measured at fair value, the carrying amount at the end of the reporting period and the valuation methods and inputs used in the fair value measurement (paragraphs 12.28(a) and (c) of the IFRS for SMEs Accounting Standard). However, other sections require such disclosure for specific transaction types (for example, see paragraphs 11.43, 16.3(a), 17.32A(c), and 34.7(b)).

Section 3 Financial Statement Presentation

The drafting of the requirements has been more closely aligned with the drafting of company law.

The requirements in paragraph 3.7 of the IFRS for SMEs Accounting Standard are deleted.

Paragraph 3.8A is inserted to require an entity to make certain disclosures about the preparation of the financial statements on a going concern basis.

Section 4 Statement of Financial Position

The requirements of this section have been modified to reflect the requirements set out in company law. Entities that do not report under company law comply with the requirements of this section, except to the extent that these requirements are not permitted by any statutory framework under which such entities report.

The requirements of the IFRS for SMEs Accounting Standard that cover the information to be presented in the statement of financial position and the notes to this statement have been retained in the Appendix Adapting the balance sheet formats to Section 4 with minor amendments for consistency with IFRS 18 Presentation and Disclosure in Financial Statements. Requirements about the classification of liabilities as either current or non-current that are based on IFRS 18 have also been included. These apply to entities that choose to adapt one of the presentation formats required by company law.

Section 5 Statement of Comprehensive Income and Income Statement

The requirements of this section have been modified to reflect the requirements set out in company law. Entities that do not report under company law comply with the requirements of this section except to the extent that these requirements are not permitted by any statutory framework under which such entities report.

The requirements of the IFRS for SMEs Accounting Standard that cover the information to be presented in the statement of comprehensive income have been retained in Appendix A Adapting the profit and loss account formats to Section 5 with minor amendments for consistency with IFRS 18 Presentation and Disclosure in Financial Statements. These apply to entities that choose to adapt one of the presentation formats required by company law.

Paragraph 5.10 has been amended and paragraphs 5.10A and 5.10B are inserted to comply with company law and include a definition of extraordinary items that is applicable to some entities.

Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings

Paragraph 6.3A is inserted to require presentation for each component of equity of an analysis of other comprehensive income by item, either in the notes, or in the statement of changes in equity.

Paragraph 6.3B is inserted to require, when an entity has more than one class of share capital, disclosure of dividends paid (in aggregate and per share) separately for each class of share capital.

Section 7 Statement of Cash Flows

The scope of this section is amended to exclude mutual life assurance companies, pension funds and certain investment funds.

Paragraph 7.7(a) and paragraph 7.8 are amended to allow, under the indirect method, net cash flows from operating activities to be determined by adjusting a measure of profit or loss disclosed in the statement of comprehensive income, in line with IAS 7 Statement of Cash Flows.

Paragraphs 7.10A to 7.10E are inserted to require the reporting of cash flows on a net basis in some circumstances.

Paragraphs 7.11 and 7.12 are amended to provide some relaxation of the exchange rates permitted to be used. Paragraph 7.12 is also amended to clarify the currency in which consolidated financial statements are presented.

Paragraph 7.19 of the IFRS for SMEs Accounting Standard, which requires a reconciliation between the opening and closing balances of liabilities arising from financing activities, is not included. However, paragraph 7.22 is inserted to require the disclosure of a net debt reconciliation.

Section 8 Notes to the Financial Statements

Paragraphs 8.5A to 8.5D are inserted to clarify the type of accounting policy information that is required to be disclosed.

Section 9 Consolidated and Separate Financial Statements

The scope of this section is amended to clarify that it applies to all parent entities that present consolidated financial statements intended to give a true and fair view.

The requirements to present consolidated financial statements are amended to comply with company law.

Paragraphs 9.4 to 9.12 retain a definition of ‘control’ and requirements for Special Purpose Entities that are based on IFRS Accounting Standards prior to the issue of IFRS 10 Consolidated Financial Statements, including clarification that Employee Share Ownership Plans and similar arrangements are Special Purpose Entities.

Paragraph 9.13(d) is amended to clarify the measurement of non-controlling interests.

Paragraphs 9.18 to 9.19D are amended to include more detailed requirements for the acquisition and disposal of subsidiaries.

Paragraph 9.23(d) is inserted to require disclosures about unconsolidated subsidiaries.

Paragraph 9.23(e) is inserted to require additional disclosures of unconsolidated Special Purpose Entities. This disclosure is derived from IFRS 12 Disclosure of Interests in Other Entities.

Paragraph 9.23A of the IFRS for SMEs Accounting Standard covers the disclosure of subsidiaries that are not consolidated based on the requirements to present consolidated accounts. As the disclosures of unconsolidated subsidiaries required by paragraph 9.23 were considered sufficient, the paragraph was deleted.

Paragraph 9.23A is inserted and paragraphs 9.24 and 9.25 are amended to clarify the distinction between the individual financial statements and separate financial statements and that company law specifies when individual financial statements are required to be prepared.

Paragraph 9.26 is amended to remove the option for an entity to account for investments in subsidiaries, associates and jointly controlled entities in its financial statements using the equity method.

Paragraphs 9.28 to 9.30 of the IFRS for SMEs Accounting Standard relating to combined financial statements are deleted.

Paragraphs 9.31 and 9.32 provide guidance on exchanges of businesses or other non-monetary assets for an interest in a subsidiary, joint venture or associate. This guidance was previously contained in UITF Abstract 31 Exchanges of businesses or other non-monetary assets for an interest in a subsidiary, joint venture or associate.

Paragraphs 9.33 to 9.38 are inserted to provide guidance on the accounting treatment for intermediate payment arrangements. These were previously contained in UITF Abstract 32 Employee benefit trusts and other intermediate payment arrangements and UITF Abstract 38 Accounting for ESOP trusts.

Section 10 Accounting Policies, Estimates and Errors

Paragraph 10.5 clarifies when an entity is required to refer to Statements of Recommended Practice (SORPs) in developing an accounting policy.

Paragraph 10.10A is amended and paragraph 10.10B is inserted to reflect the options added to FRS 102 for an entity to use the cost model or revaluation model for certain assets (see Section 18 Intangible Assets and Section 34 Specialised Activities).

Section 11 Basic Financial Instruments

This section broadly corresponds to paragraphs 11.1 to 11.48 (Part I of Section 11 Financial Instruments) of the IFRS for SMEs Accounting Standard, with the following significant differences.

The scope of Section 11 is amended to clarify that certain financial instruments are not within its scope.

The references to ‘non-convertible preference shares and non-puttable ordinary and preference shares’ in this section of the IFRS for SMEs Accounting Standard are removed and replaced with ‘non-derivative financial instruments that are equity of the issuer’. This allows those instruments that are liabilities of the holder to be measured at amortised cost (if that instrument is classified as ‘basic’).

Paragraph 11.2 is inserted to allow, in some circumstances, an entity to apply the recognition and measurement provisions of IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.

Paragraphs 11.2A and 11.2B are inserted to deal with the financial reporting implications associated with the replacement of interest rate benchmarks for entities taking the option to apply the recognition and measurement provisions of IFRS 9 or IAS 39.

Paragraph 11.4 of the IFRS for SMEs Accounting Standard is deleted to remove the undue cost or effort exemption from measuring investments in equity instruments at fair value.

Paragraph 11.11A of the IFRS for SMEs Accounting Standard is replaced with paragraph 11.6A, which clarifies when the reclassification of a financial instrument is necessary.

Amendments were made to paragraph 11.9 to clarify and, in some cases, extend the classification of financial instruments as basic.

Paragraphs 11.9A and 11.9B of the IFRS for SMEs Accounting Standard are deleted and paragraph 11.9ZA of the IFRS for SMEs Accounting Standard is renumbered to be paragraph 11.9A. Examples are inserted after paragraph 11.9 that illustrate the principles of that paragraph.

Paragraphs 11.11(b) and (c) are deleted as the instruments shown as examples are excluded from debt instruments within the scope of Section 11 under paragraph 11.8(b).

Paragraphs 11.13A to 11.13C are inserted to allow small entities the option to measure loans from a director (or their group of close family members when that group contains at least one shareholder) at transaction price.

Paragraph 11.14(a) is amended to clarify: that debt instruments measured at an undiscounted amount are at amortised cost; the conditions under which short-term debt-instruments can be measured at an undiscounted amount; and the requirements for the subsequent measurement of financing transactions.

Paragraphs 11.14(b) and 11.14(c) of the IFRS for SMEs Accounting Standard are included as paragraphs 11.14(c) and 11.14(d). Paragraph 11.14(b) is inserted to clarify that entities may choose to designate debt instruments and loan commitments as at fair value through profit or loss under certain circumstances. Paragraph 11.14(c) is amended to provide accounting policy options for the measurement of investments in other group entities consistent with company law.

Paragraph 11.17 is amended to clarify how to account for changes in an index of general price inflation when calculating the effective interest rate.

Paragraphs 11.20A to 11.20E are inserted to deal with the financial reporting implications associated with the replacement of interest rate benchmarks. These paragraphs are based on paragraphs 5.4.5 to 5.4.9 of IFRS 9 Financial Instruments.

Paragraph 11.38A is inserted to allow offsetting of certain financial assets and financial liabilities in the statement of financial position.

Paragraph 11.39 of the IFRS for SMEs Accounting Standard is deleted.

Paragraph 11.41 is amended to restrict the disclosure of the carrying amounts of financial instruments at the reporting date to those measured at fair value through profit or loss.

Paragraph 11.42 is amended to note that additional disclosure may be required when the risks arising from financial instruments are particularly significant to the business.

Paragraphs 11.43 to 11.43B of the IFRS for SMEs Accounting Standard are not included. However, paragraph 34.28 requires similar disclosures to be made by financial institutions and paragraph 11.42 directs other entities to consider this requirement when the risks arising from financial instruments are particularly significant to the business.

Paragraph 11.44 is amended to remove the reference to the undue cost or effort exemption from measuring investments in equity instruments at fair value.

Paragraph 11.48 is amended and paragraphs 11.48ZA and 11.48ZB are inserted to include disclosures that are required if entities apply the recognition and measurement requirements of IFRS 9. These paragraphs are based on paragraphs 35G and 35H of IFRS 7 Financial Instruments: Disclosures.

Paragraph 11.48A is inserted to provide disclosures required in accordance with company law for certain financial instruments held at fair value.

Paragraphs 11.48B and 11.48C are inserted to require additional disclosures for financial institutions and retirement benefit plans.

Paragraphs 11.49 and 11.50 are inserted to deal with disclosures associated with the financial reporting implications associated with the replacement of interest rate benchmarks. These paragraphs are based on paragraph 24I of IFRS 7.

Section 12 Other Financial Instruments Issues

This section broadly corresponds to paragraphs 11.49 to 11.75 (Part II of Section 11 Financial Instruments) of the IFRS for SMEs Accounting Standard, with the following significant differences.

The scope of Section 12 is amended to exclude financial instruments issued by an entity with a discretionary participation feature, reimbursement assets and all financial guarantee contracts.

Paragraph 12.2 is inserted to allow, in some circumstances, an entity to apply the recognition and measurement provisions of IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.

Paragraphs 12.2A and 12.2B are inserted to deal with the financial reporting implications associated with the replacement of interest rate benchmarks for entities taking the option to apply the recognition and measurement provisions of IFRS 9 or IAS 39.

Paragraph 12.7 (paragraph 11.53 of the IFRS for SMEs Accounting Standard) is amended to clarify the treatment of transaction costs and the initial measurement of financing transactions.

Paragraphs 11.54(a) and 11.54(b) of the IFRS for SMEs Accounting Standard are included as paragraphs 12.8(b) and 12.8(a). Paragraph 12.8(b) is amended to remove the reference to the undue cost or effort exemption from measuring investments in equity instruments at fair value.

Paragraph 12.8(c) is inserted to clarify when financial instruments within the scope of Section 12 should be measured at amortised cost, based on the legal framework.

Paragraph 12.9 (paragraph 11.56 of the IFRS for SMEs Accounting Standard) is amended to remove the reference to the undue cost or effort exemption from measuring investments in equity instruments at fair value.

Paragraphs 11.61 to 11.71 of the IFRS for SMEs Accounting Standard are deleted and replaced with paragraphs 12.15 to 12.25V to include revised hedge accounting requirements that are based on IFRS 9 which have the following effect:

1. the scope of permissible hedged items and hedging instruments is expanded
2. the hedge accounting conditions are revised and simplified
3. it determines three hedge accounting models, ie cash flow, fair value and net investment hedges
4. it allows the option for entities to apply the macro-hedging requirements of IAS 39 whilst using the recognition and measurement requirements of Section 11 and 12
5. it introduces a documentation requirement in cases of voluntary hedge accounting discontinuation, and
6. it deals with the financial reporting implications associated with the replacement of interest rate benchmarks.

Paragraph 12.25W is inserted to allow offsetting of certain financial assets and financial liabilities in the statement of financial position.

Paragraph 12.26 (paragraph 11.72 of the IFRS for SMEs Accounting Standard) is amended to comply with company law.

Paragraphs 11.74 and 11.75 of the IFRS for SMEs Accounting Standard are deleted and replaced with paragraphs 12.28 to 12.29A to included revised disclosure requirements for the three hedge accounting models, ie cash flow, fair value and net investment hedges.

Paragraph 12.30 is inserted to require additional disclosures when an entity applies the hedge accounting requirements associated with the replacement of interest rate benchmarks. This paragraph is based on paragraph 24H(a) of IFRS 7 Financial Instruments: Disclosures.

The Appendix to Section 12 is inserted to illustrate by way of example the application of the hedge accounting requirements.

Section 13 Inventories

Paragraph 13.3 is amended to permit inventory to be measured at fair value less costs to sell through profit or loss in certain circumstances.

Paragraphs 13.4A and 13.20A are inserted to provide guidance on inventories held for distribution at no or nominal consideration.

Paragraph 13.5A is inserted to provide guidance on inventory acquired through non-exchange transactions.

Paragraph 13.8A is inserted to clarify the treatment for provisions made against dismantling and restoration costs (of property, plant and equipment) in the cost of inventory.

Paragraph 13.12 is deleted because of the revisions to the hedge accounting requirements.

Paragraph 13.15 is amended to allow for the inclusion of a cost model for agricultural produce in Section 34 Specialised Activities.

Paragraph 13.22(c) is deleted to remove the requirement to disclose the amount of inventories recognised as an expense during the period.

Section 14 Investments in Associates

The scope of this section is amended to clarify its application to consolidated financial statements and to the individual financial statements of an entity that is not a parent but which holds investments in associates.

Paragraph 14.4(b) is deleted to remove the option for non-parent investors to account for investments in associates in their individual financial statements using the equity method.

Paragraph 14.4(d) is inserted to allow non-parent investors to account for investments in associates at fair value with changes recognised in profit or loss.

Paragraph 14.4A is inserted to require parent investors to account for investments in associates in their consolidated financial statements using the equity method.

Paragraph 14.4B is inserted to require parent investors that have investments in associates that are held as part of an investment portfolio to measure those investments at fair value with the changes recognised in profit or loss in their consolidated financial statements.

Paragraph 14.9 is amended to require transaction costs to be included as part of the transaction price on initial recognition.

Paragraph 14.10 is amended to remove the undue cost or effort exemption from measuring investments in associates at fair value, and to require changes in fair value to be recognised through other comprehensive income, in accordance with paragraphs 17.15E and 17.15F, rather than through profit or loss.

Paragraph 14.11 is deleted for consistency with company law, which requires investments to be classified as current assets in some circumstances.

Paragraph 14.15 is amended to remove the reference to the undue cost or effort exemption from measuring investments in associates at fair value.

Paragraph 14.15A is inserted to provide information about associates held by entities that are not parents.

Section 15 Investments in Joint Ventures

This section uses the general term ‘joint venture’ (rather than ‘joint arrangement’ in the IFRS for SMEs Accounting Standard) and a definition of ‘joint control’ that is based on IFRS Accounting Standards prior to the issue of IFRS 10 Consolidated Financial Statements.

The scope of this section is amended to clarify its application to consolidated financial statements and to the individual financial statements of a venturer that is not a parent.

Paragraph 15.9(b) is deleted to remove the option for non-parent investors to account for investments in jointly controlled entities in their individual financial statements using the equity method.

Paragraph 15.9(d) is inserted to allow non-parent investors to account for investments in jointly controlled entities at fair value with the changes recognised in profit or loss.

Paragraph 15.9A is inserted to require parent investors to account for investments in jointly controlled entities in their consolidated financial statements using the equity method.

Paragraph 15.9B is inserted to require parent investors that have investments in jointly controlled entities that are held as part of an investment portfolio to measure those investments at fair value with the changes recognised in profit or loss in their consolidated financial statements.

Paragraph 15.14 is amended to require transaction costs to be included as part of the transaction price on initial recognition.

Paragraph 15.15 is amended to remove the undue cost or effort exemption from measuring investments in jointly controlled entities at fair value, and to require changes in fair value to be recognised through other comprehensive income, in accordance with paragraphs 17.15E and 17.15F rather than through profit or loss.

Paragraph 15.17 is amended to permit the recognition of profits of the joint venture when the venturer realises the carrying amount of an asset purchased from the joint venture in circumstances other than through resale to an independent party.

Paragraphs 15.18 to 15.18B of the IFRS for SMEs Accounting Standard are not included. Paragraph 15.18 instead describes in simpler terms how to account for joint ventures where an investor does not have joint control.

Paragraph 15.21 is amended to remove the reference to the undue cost or effort exemption from measuring investments in jointly controlled entities at fair value.

Paragraph 15.21A is inserted to provide information about jointly controlled entities held by venturers that are not parents.

Section 16 Investment Property

This section is amended to remove the undue cost or effort exemption in relation to fair value measurement of investment property. The section is also amended to provide an accounting policy choice for investment property rented to another group entity. Paragraph 16.4A is inserted to allow entities to measure such properties at cost.

This section is amended, as a consequence of the differences arising in Section 20 Leases, to bring all leases for which right-of-use assets are recognised within scope of Section 16 if the other criteria for accounting for the property as investment property are met. This approach is similar to the approach taken in IAS 40 Investment Property.

Paragraph 16.4 is amended to include criteria for separating portions of mixed use property consistent with IAS 40.

Paragraphs 16.9A to 16.9C are inserted to provide guidance on the accounting treatment when a property meets, or ceases to meet, the definition of an investment property.

Section 17 Property, Plant and Equipment

This section is amended to remove references to the undue cost or effort exemption in relation to fair value measurement of investment property. The section is also amended to include requirements for investment properties rented to another group entity that are measured at cost, as permitted by Section 16 of FRS 102.

Paragraph 17.3(a) is amended to remove bearer plants that can be measured separately from the produce on them, and heritage assets, from the scope of this section (see Section 34 Specialised Activities).

Paragraphs 17.15C and 17.15D are inserted to provide guidance on determining the fair value of property, plant and equipment measured using the revaluation model.

Paragraph 17.33 of the IFRS for SMEs Accounting Standard is included as paragraph 17.32A, and has been amended to remove the requirement to disclose the revaluation surplus of property, plant and equipment measured using the revaluation model.

Section 18 Intangible Assets other than Goodwill

This section is amended to permit entities to recognise intangible assets that result from expenditure incurred on the internal development of an intangible item (subject to certain criteria). The section provides guidance on what comprises the cost of an internally generated intangible asset and the criteria for initial recognition.

The section is also amended to provide that, after initial recognition, an entity may use the cost model or revaluation model.

Paragraph 18.3(c) is amended to align the scope of the section with IAS 38 Intangible Assets.

Paragraph 18.8 is amended to require entities to recognise some, but not all, intangible assets acquired in a business combination separately from goodwill. The paragraph also includes an option for entities to recognise more intangible assets separately from goodwill. If taken, this option must be applied consistently and additional disclosures provided.

Section 19 Business Combinations and Goodwill

In the third edition of the IFRS for SMEs Accounting Standard, Section 19 was amended to align with more of the requirements in IFRS 3 (2008) Business Combinations. In contrast, Section 19 of FRS 102 continues to be based on IFRS 3 (2004).

The following significant differences exist between FRS 102 and the IFRS for SMEs Accounting Standard:

• Section 19 of FRS 102 does not exclude from its scope business combinations under common control. The merger accounting method, set out in paragraphs 19.29 to 19.33, is permitted for group reconstructions when certain criteria are met.
• There are various differences between the ‘purchase method’ in FRS 102 and the ‘acquisition method’ in the IFRS for SMEs Accounting Standard, and related defined terms.
• FRS 102 does not include the requirement of the IFRS for SMEs Accounting Standard to measure contingent consideration at fair value through profit or loss.
• Under paragraph 19.11(b) of FRS 102, costs directly attributable to the business combination are included in the cost of the business combination. Under paragraph 19.32 of the IFRS for SMEs Accounting Standard, acquisition-related costs are accounted for separately from the business combination.
• Paragraph 19.11B is inserted in FRS 102 to provide guidance on determining whether arrangements for contingent payments to selling shareholders are contingent consideration in the business combination or are separate transactions. This paragraph is based on paragraph B54 of IFRS 3.
• Paragraph 19.15C is inserted in FRS 102 to provide guidance on the treatment of share-based payments of a subsidiary on acquisition.
• Paragraph 19.19A is inserted in FRS 102 to specify the accounting for leases in which the acquiree is the lessee, in light of Section 20 Leases of FRS 102 having been rewritten as described below.
• Paragraph 19.26A is inserted in FRS 102, and paragraph 19.24 is amended, to comply with the requirements of company law for bargain purchases (negative goodwill).
• FRS 102 does not include the guidance in paragraphs 19.29 and 19.30 of the IFRS for SMEs Accounting Standard for a business combination achieved in stages. Paragraph 9.19B of FRS 102 provides guidance, aligned with the requirements of company law, where control is achieved in stages.
• FRS 102 does not include the ‘concentration test’ for identifying a business, which is included in the Appendix to Section 19 in the IFRS for SMEs Accounting Standard.
• FRS 102 generally omits all ‘undue cost or effort’ exemptions.
• There are a number of differences between the disclosure requirements of the two standards about business combinations.

Section 20 Leases

Section 20 of the IFRS for SMEs Accounting Standard has been entirely replaced with revised requirements. These provide an on‑balance sheet lease accounting model based on that in IFRS 16 Leases, but with optional simplifications and modifications, for example:

• The low-value recognition exemption is available in more cases than the equivalent exemption in IFRS 16.
• The introduction of the lessee’s obtainable borrowing rate as an alternative to the lessee’s incremental borrowing rate.
• Reducing the number of situations in which a lease modification requires the determination of a revised discount rate.
• Offering the option of a simpler approach to recognising gains and losses on sale and leaseback transactions.
• Requirements for leases that contain a non-exchange component.

Section 21 Provisions and Contingencies

The scope of Section 21 is amended to include all financial guarantee contracts, except where an entity has chosen to apply IAS 39 Financial Instruments: Recognition and Measurement and/or IFRS 9 Financial Instruments to its financial instruments, or has elected under FRS 103 Insurance Contracts to continue the application of insurance contract accounting.

Paragraph 21.16 is amended to remove the undue cost or effort exemption from disclosing an estimate of the financial effect of a contingent asset.

Paragraph 21.17 is amended to comply with disclosure requirements set out in company law.

Section 22 Liabilities and Equity

The scope of Section 22 is amended to exclude contracts for contingent consideration in a business combination, financial guarantee contracts and insurance contracts, which are outside the scope of Section 22 of FRS 102 and are covered by Section 19 of FRS 102, Section 21 of FRS 102 and by FRS 103 respectively.

Paragraph 22.3A is amended to clarify that a financial instrument where settlement is dependent on the occurrence or non-occurrence of uncertain future events beyond the control of the issuer and the holder, is a financial liability of the issuer unless specific circumstances apply.

Paragraph 22.7(a) of the IFRS for SMEs Accounting Standard is deleted as the presentation of unpaid share capital as an offset to equity is not compliant with company law.

Paragraph 22.8 is amended to remove the exemption from initially measuring equity instruments issued as part of a business combination at fair value. The paragraph is also amended to include the exemption from initially measuring equity instruments at fair value available in company law.

Paragraph 22.8A is inserted and includes the clarification in paragraph 22.15C of the IFRS for SMEs Accounting Standard that certain debt-for-equity swaps are excluded from the scope of Section 22.

The requirement for an entity to recognise a liability at fair value when non-cash assets are distributed to owners is removed and only disclosure is required in paragraph 22.18. The undue cost or effort exemption from measuring non-cash distributions at fair value and guidance on partial extinguishment are also removed.

Section 23 Revenue from Contracts with Customers

This section and Section 23 of the IFRS for SMEs Accounting Standard are both based on IFRS 15 Revenue from Contracts with Customers. This section was based on IASB/ED/2022/1 Draft third edition of the IFRS for SMEs Accounting Standard and the further modifications set out below.

The structure and some of the language and phrasing used in this section (for example, the IFRS 15 term ‘performance obligation’) is different to the IFRS for SMEs Accounting Standard.

Many topics in this section are more closely aligned than the IFRS for SMEs Accounting Standard to the corresponding requirements in IFRS 15, for example the requirements for warranties in paragraphs 23.26 to 23.28 and requirements related to repurchase agreements in paragraphs 23.90 to 23.97.

This section contains requirements that are intended to allow, but not require, an entity applying FRS 102 to have accounting policies that would meet the requirements of IFRS 15. For example, paragraph 23.113 allows an entity to recognise costs to obtain a contract as an asset in some circumstances.

Section 24 Government Grants

Paragraph 24.4 is amended and paragraphs 24.5C to 24.5G are inserted to allow the option to use an additional model of accounting for grants (the accrual model) based on IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Section 25 Borrowing Costs

Section 25 is amended to allow an option that permits entities to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. The borrowing costs eligible for capitalisation are consistent with IAS 23 Borrowing Costs.

Section 26 Share-based Payment

Paragraph 26.2A is inserted to clarify the accounting treatment for an entity settling a share-based payment transaction in group plan.

Paragraph 26.13A is inserted to clarify the accounting treatment when settling an equity-settled share-based payment transaction with cash as an alternative to the transfer of equity instruments.

Paragraphs 26.15 to 26.15D of the IFRS for SMEs Accounting Standard are deleted and replaced with new paragraphs 26.15 to 26.15B to bring the accounting for share-based payment arrangements with cash alternatives closer to that required by IFRS 2 Share-based Payment when the entity has a settlement choice.

Paragraph 26.16 is amended to specify the measurement bases that may be used when an entity applies the simplification provided by this paragraph.

Paragraph 26.17 of the IFRS for SMEs Accounting Standard applies to all share-based payment transactions in which the identifiable consideration appears to be less than the fair value of the equity instruments granted or the liability incurred. Paragraph 26.17 of FRS 102 applies only to transactions provided as part of government-mandated plans.

Section 27 Impairment of Assets

The scope of this section is amended to exclude the impairment of assets arising from insurance contracts.

Paragraph 27.14 is amended and paragraph 27.14A is inserted to provide guidance on measuring an asset at fair value less costs to sell.

Paragraph 27.20A is inserted to provide guidance on the treatment of impairments on assets held for their service potential.

Paragraph 27.33A is inserted to include a descriptive disclosure requirement of the events and circumstances that led to the recognition or reversal of the impairment loss.

Section 28 Employee Benefits

The presentation of the cost of a defined benefit plan and the accounting for group plans have been amended to be consistent with the requirements of IAS 19 Employee Benefits.

Paragraphs 28.11A and 28.13A are inserted to require the recognition of a liability on a defined contribution scheme, or a defined benefit multi-employer plan which is accounted for as a defined contribution scheme, where funding of a deficit has been agreed. These paragraphs are based on paragraphs 37 and 52 of IAS 19.

Paragraphs 28.11B to 28.11D are inserted to include requirements for the transition from defined contribution accounting to defined benefit accounting for these plans.

Paragraph 28.18 is amended and paragraphs 28.19 and 28.41(c) are deleted to remove the undue cost or effort exemption that permits an entity to use a simplified valuation method to measure its defined benefit obligation.

Paragraphs 28.34 to 28.35 of the IFRS for SMEs Accounting Standard, which address termination benefits, are replaced with Paragraphs 28.34 to 28.35 from the second edition of the IFRS for SMEs Accounting Standard.

Paragraph 28.41(l) of the IFRS for SMEs Accounting Standard, which requires disclosure of the expected contributions to the defined benefit plan for the next annual reporting period, is deleted.

Paragraph 28.41(l) is inserted to require an entity to disclose, when applicable, the basis used to determine the limit on recognising a plan surplus.

Section 29 Income Tax

Section 29 of the IFRS for SMEs Accounting Standard has been entirely replaced with revised requirements. These require a ‘timing differences plus’ approach to deferred income taxes, rather than a temporary difference approach.

Section 30 Foreign Currency Translation

Paragraphs 30.5A, 30.28 to 30.29 and the Appendix to Section 30 of the IFRS for SMEs Accounting Standard, which contain requirements for estimating a spot exchange rate when a currency is not exchangeable, are not included.

The requirement in paragraph 30.13 to recognise exchange differences arising from monetary items which form part of an entity’s net investment in a foreign operation in profit or loss is amended for consistency with company law.

Paragraph 30.21 is amended to specify procedures for translating the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy into a different presentation currency.

Section 31 Hyperinflation

The requirement in paragraph 31.13 to recognise gains or losses on an entity’s net monetary position in profit or loss is amended for consistency with company law.

Section 32 Events after the End of the Reporting Period

Paragraphs 32.7A and 32.7B are inserted to provide guidance on the impact of changes in an entity’s going concern status.

The requirement in paragraph 32.9 to disclose if an entity’s owners or others have the power to amend the financial statements after issue has been removed for consistency with company law.

Section 33 Related Party Disclosures

Paragraph 33.1A is inserted to provide an exemption, from disclosing related party transactions between wholly-owned entities, available in company law.

Paragraph 33.7A is inserted to include an exemption from the disclosure of key management personnel compensation for companies that are required by company law to disclose directors’ remuneration if the key management personnel and directors are the same.

Paragraph 33.15 of the IFRS for SMEs Accounting Standard, which requires disclosure of additional information if a reporting entity applies the exemption in paragraph 33.11, is not included.

Section 34 Specialised Activities

Agricultural Activities – this sub-section is amended to remove the option to account for bearer plants in accordance with Section 17 Property, Plant and Equipment and to allow the option to hold biological assets and agricultural produce at cost.

Extractive Activities – this sub-section has been amended to require application of IFRS 6 Exploration for and Evaluation of Mineral Resources.

Service Concession Arrangements – this sub-section is amended to clarify the accounting by operators based on IFRIC 12 Service Concession Arrangements and provide guidance to grantors. The sub-section is also amended to require additional disclosures derived from SIC‑29 Disclosure—Service Concession Arrangements.

The following additional sub-sections are inserted:

• Financial Institutions – specifies additional required disclosures for financial institutions
• Retirement Benefit Plans: Financial Statements – specifies disclosures and presentation requirements for retirement benefit plans
• Heritage Assets
• Funding Commitments
• Incoming Resources from Non-Exchange Transactions
• Public Benefit Entity Combinations, and
• Public Benefit Entity Concessionary Loans.

Section 35 Transition to this FRS

Amendments to this section reflect the changes in preceding sections and the transition from other UK and Ireland accounting standards.

Topics

• Accounting
• Standards, Codes & Guidance