What are the key differences between FRS 102 and US GAAP for revenue and lease accounting for lessees?
FRS 102 amendments for revenue recognition are based on IFRS principles, which are broadly aligned with US GAAP for revenue recognition. Both frameworks use a five-step model for revenue. However, lease accounting differs: Under FRS 102, lessees recognise a right-of-use asset and lease liability, with depreciation and interest creating a front-loaded expense profile. US GAAP uses a straight-line total expense approach even when lease is on balance sheet, to avoid skewed costs.
Can we continue to use percentage-of-completion for revenue recognition?
Yes, you can continue to use percentage-of-completion methods for contracts that meet the criteria for revenue recognition over time. The revised standard allows input or output methods, provided they faithfully depict performance. More detailed guidance on the methods are included in the revised requirements.
Are 12-month vehicle leases exempt from balance sheet recognition?
Finance Directors Hub
Read more about Finance Directors HubRead moreLeases of 12 months or less qualify for exemption from balance sheet recognition, provided there are no extension options that the entity is reasonably certain to exercise.
What is deemed to be a ‘low-value’ underlying asset under FRS 102?
FRS 102 does not prescribe a fixed monetary threshold for low-value underlying assets. Instead, entities must apply judgment based on materiality and the nature of the asset. FRS 102 lists out assets that would not normally be considered to be of low value. The asset’s value is considered at the inception of the lease whereas IFRS requires consideration of the value of an asset from the perspective of it being new.
Do salary sacrifice car leases need to be recognised on the balance sheet?
If the company is the lessee and controls the right to use the vehicle, the lease must be recognised on the balance sheet, even if costs are largely passed to employees. Such schemes will need to be evaluated in order to assess the correct accounting treatment.
Are supplier finance disclosures required for both parties?
Disclosure requirements apply to the entity providing the supplier finance facility, not the supplier benefiting from early payment.
What interest rate should we use for discounting lease liabilities?
If the rate implicit in the lease is not readily determinable, use the lessee’s incremental borrowing rate. If no comparable borrowing exists, FRS 102 introduces the ‘obtainable borrowing rate.’
Do cloud computing arrangements count as right-of-use assets?
Cloud computing arrangements typically represent a service rather than a lease where there is no specified identified asset controlled by the customer however such arrangements will require assessment
Will finance leases still be capitalised under the new rules?
Under the revised model, all leases previously classified as finance leases will now be recognised as right-of-use assets with corresponding lease liabilities.
Do dilapidations or restoration costs need to be included in lease accounting?
Expected restoration or dilapidation costs at the end of a property lease must be included in the measurement of the right-of-use asset at inception, discounted to present value.
Can we use our existing IFRS 16 or management account models for FRS 102 implementation?
Yes, existing calculations currently applied where an entity provides information for group reporting of its leases under IFRS 16 can be used as the basis for the amounts of ROU assets and lease liability at date of transition. Where leases were previously recognised as finance leases those carrying amounts of asset and liability at date of transition may be applied (unless the IFRS 16 exemption previously discussed applies).
Further Support
Our specialists are on hand to guide you through every stage of the FRS 102 transition, from assessing the impact on your financial statements to updating systems and training your teams.
Whether you need help with revenue recognition, lease accounting, or managing disclosures, we can provide tailored advice and practical solutions to make the process smooth and compliant.
Please get in touch with us today to discuss your requirements and explore how we can support you.
