FRS 102 is a simplified UK standard built on the IFRS for SMEs, so its broad principles match full IFRS but several important rules differ. The biggest gaps for UK groups are goodwill, which FRS 102 amortises and IFRS does not, intangible assets, impairment of financial assets, deferred tax and a series of policy choices FRS 102 allows where IFRS insists. Since 2026 the two are much closer on revenue and leases, and the disclosure burden remains far lighter under FRS 102.

Why are the two frameworks different at all?

The FRC’s summary at the front of FRS 102 says its requirements are based on the IFRS for SMEs Accounting Standard, first issued in 2009 for entities that are not publicly accountable, and that the FRC has modified that standard substantially. Full IFRS is written for listed groups and investors in capital markets; FRS 102 aims to give proportionate information to the lenders, owners and creditors of private entities. The result is a standard that usually follows IFRS principles but chooses the simpler route where IFRS demands judgement or fair value.

The gap narrowed with the Periodic Review 2024 amendments, effective for periods beginning on or after 1 January 2026. FRS 102 Section 23 now uses a five step revenue model based on IFRS 15 (paragraph B23.1), and Section 20 now puts leases on the balance sheet using a model based on IFRS 16 (paragraph B20.3). See FRS 102 changes from January 2026.

How is goodwill treated?

This is the difference that most affects reported profits.

Point FRS 102 IFRS
After acquisition Cost less amortisation and impairment (paragraph 19.23) Not amortised; carried at cost less impairment
Useful life Always finite; maximum 10 years if it cannot be estimated reliably No useful life assigned
Impairment testing When there is an indicator (Section 27) Every year under IAS 36, whether or not there is an indicator
Negative goodwill Shown below goodwill on the balance sheet and released over time (paragraph 19.24) Gain on a bargain purchase in profit or loss immediately under IFRS 3
Non controlling interest Proportionate share of net assets Option to measure at fair value, bringing in full goodwill

FRS 102 also allows merger accounting for qualifying group reconstructions (paragraph 19.27). The FRC notes in paragraph B19.1 that IFRS has no requirements for business combinations under common control, so IFRS groups have no equivalent rule to follow. See FRS 102 Section 19 and merger accounting for group reconstructions.

What changes for other intangible assets?

Paragraph 18.19 of FRS 102 says all intangible assets have a finite useful life, and paragraph 18.20 caps the life at 10 years when it cannot be estimated reliably. IAS 38 allows an intangible asset to have an indefinite life, in which case it is not amortised but tested for impairment every year.

Development costs are another split. Under IAS 38, development expenditure that meets the specified criteria is recognised as an intangible asset. FRS 102 paragraph 18.8H says an entity may recognise such an asset, making capitalisation a policy choice. Two UK groups with similar research programmes can therefore report quite different profits under FRS 102, but not under IFRS.

How do financial instruments differ?

FRS 102 paragraph 11.2 gives a choice: apply Sections 11 and 12 in full, or apply the recognition and measurement rules of IAS 39 or IFRS 9 with the FRS 102 disclosures. Most private companies use Sections 11 and 12. Two consequences follow:

  • Impairment of receivables and loans. Under paragraph 11.21 a loss is recognised when there is objective evidence of impairment. IFRS 9 requires an allowance for expected credit losses, so a provision is usually needed earlier, before any default.
  • Classification. FRS 102 measures basic debt instruments at amortised cost (paragraph 11.14) and most other instruments at fair value through profit or loss (paragraph 12.8). IFRS 9 classifies financial assets by business model and cash flow characteristics, and includes a fair value through other comprehensive income category. See basic financial instruments under FRS 102.

How is deferred tax calculated?

FRS 102 paragraph 29.6 recognises deferred tax on timing differences: differences between taxable profits and total comprehensive income that arise because items are taxed in different periods from when they are recognised in the accounts. Paragraph 29.11 adds a specific rule for assets acquired in a business combination. IAS 12 starts from the balance sheet: deferred tax is recognised for all temporary differences between the carrying amount of an asset or liability and its tax base, subject to exceptions. In many ordinary situations the two methods give similar answers, but groups moving between frameworks need to recheck every balance rather than assume they match. See deferred tax under FRS 102.

Which other measurement rules differ?

  • Investment property. FRS 102 paragraph 16.7 requires fair value through profit or loss. IAS 40 lets an entity choose the fair value model or the cost model, with fair value disclosed under the cost model.
  • Borrowing costs. FRS 102 paragraph 25.2 allows a policy of capitalising or expensing. IAS 23 requires borrowing costs directly attributable to a qualifying asset to be capitalised; the IASB removed the option to expense them in 2007.
  • Leases. Both now use a right of use model, but FRS 102 adds optional simplifications. Paragraph 20.49 lets a lessee discount at its obtainable borrowing rate, and paragraph B20.8 explains a more permissive approach to low value assets. The FRC says in paragraph B20.6 that an entity not taking the simplifications should reach an outcome comparable with IFRS 16.
  • Revenue. Section 23 follows the IFRS 15 model but, according to paragraph B23.7, with simpler wording, for example on licences and variable consideration.

How do disclosures compare?

Full IFRS carries the complete disclosure requirements of every standard. FRS 102 is shorter, and a qualifying entity, broadly a group member included in publicly available consolidated accounts, can drop more in its own accounts: paragraphs 1.8 and 1.12 exempt it from a cash flow statement and, where the group accounts contain equivalent disclosures, certain financial instrument and other notes.

Many UK subsidiaries of IFRS groups use FRS 101 instead. Under paragraph 5 of FRS 101 a qualifying entity applies the recognition and measurement rules of adopted IFRS with reduced disclosures, and paragraph 4A confirms these are Companies Act accounts, not IAS accounts. That lets a subsidiary report on IFRS numbers without dual bookkeeping for consolidation.

IFRS disclosure is itself changing. IFRS 18, which replaces IAS 1, is effective for periods beginning on or after 1 January 2027 according to the IASB; it introduces required subtotals for operating profit and for profit before financing and income taxes, and disclosure of management defined performance measures. The IASB’s IFRS 19 lets eligible subsidiaries apply IFRS with reduced disclosures, also from 1 January 2027. In the UK, new IASB standards apply only once adopted by the UK Endorsement Board.

What does this mean for a UK group in practice?

Illustration only. A group buys a business and recognises £1 million of goodwill. Under FRS 102, with a useful life of 10 years, it charges £100,000 of amortisation a year, reducing reported profit and the carrying amount steadily. Under IFRS the goodwill stays at £1 million unless the annual impairment test shows a shortfall, so profit is higher in normal years but a single bad year can produce a large write off.

The same group may find that switching to IFRS brings earlier credit loss provisions, capitalised borrowing costs on a construction project, and the loss of the cash flow exemption in subsidiaries. When groups weigh the move, the usual reasons are a planned listing, a foreign parent that reports under IFRS, or investors used to IFRS numbers. Whether IFRS is compulsory or optional is covered in when UK companies must use IFRS.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.