Consultation on FRS 102 and update to the Pensions SORP

Shona Harvie, Partner, Pension Funds

Financial Reporting Exposure Draft, FRED 82 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review, has been published for consultation.

FRED 82 proposes a number of amendments to accounting requirements to reflect changes in IFRS Accounting standards, along with other incremental improvements and clarifications.

The proposed changes include:

  • Changes to revenue recognition, based on the five-step model for revenue recognition from IFRS 15 ‘Revenue from Contracts with Customers’, with appropriate simplifications.
  • Changes to lease accounting requirements, based on the on-balance sheet model from IFRS 16 ‘Leases’, with some simplifications.
  • Changes to fair value measurement definitions to reflect the principles of IFRS 13 ‘Fair Value Measurement’.
  • Some proposed changes to expected credit loss disclosures to include quantitative and qualitative information about amounts arising from expected credit losses on certain financial instruments such as loans. The proposed disclosures are only applicable when a rare decision has been made to apply IFRS 9 on Financial Instruments. However, the Financial Reporting Council’s (FRC) decision on whether to align FRS 102 with the expected credit loss model of financial asset impairment from IFRS 9 Financial Instruments will be deferred to a further consultation.
  • An amendment to pension scheme risk disclosures as follows: “A retirement benefit plan shall disclose information that enables users of its financial statements to evaluate the nature and extent of credit risk and market risk arising from financial instruments to which the retirement benefit plan is exposed at the end of the reporting period and which may impact the ability of the plan to pay the promised retirement benefits to members.”

The first two of these proposed changes will not have an impact on pension schemes. However, the second two may. The change in the definition of fair value could potentially change how some investments are valued. The change to risk disclosures could change the scope of what is disclosed. It could increase the scope of risks to be considered and could potentially give more latitude to consider risks in a way more aligned with how the Trustees view risks.

The Pensions Research Accountants Group (PRAG) SORP working party will be considering the changes set out in FRED 82, and a revised SORP will be issued alongside the revised FRS 102 and other impacted FRS’. This review also provides an opportunity to consider whether there are other aspects of the pensions SORP that should be revised, either expanded or refined, to reflect latest industry practices and improve the report and accounts. Potential areas that could be covered include:

  • master trust and consolidators
  • refinement of hybrid disclosures
  • further guidance on investment risk disclosures
  • further guidance on information to be included in the Trustees’ Report
  • reduced disclosures for smaller schemes.

Another area for consideration is the additional reports included within the Annual Report such as DC Chairs Statements, Implementation Statements and TCFD information on climate related matters. Consideration should be given to whether the Annual Report is the right place for these reports. This would require a change in regulations.

The proposed effective date of the amendments set out in the FRED is for accounting periods beginning on or after 1 January 2025, and this timescale will also apply to the revised SORP.

Comments on FRED 82, including the consultation stage impact assessment, are requested by 30 April 2023. The consultation can be accessed here.

For further information, please get in touch with Shona Harvie or your usual Crowe contact.


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Shona Harvie
Shona Harvie
Partner, Pension Funds Group