FRED82 – July Update

• FRED 82 Implementation: FRED 82 aims to modernise financial reporting in the UK by incorporating IFRS updates, which will impact revenue recognition and reporting practices for mixed-service companies. Businesses must understand these changes to align their accounting practices with international standards.
• Audit Threshold Re-evaluation: The proposed increase in audit thresholds could exempt between 50,000 to 100,000 companies from mandatory audits, reducing compliance burdens. However, the delay in passing this legislation is creating uncertainty and may affect planning for many businesses.
• Impact on Financial Metrics: The changes will affect key performance indicators, such as EBITDA, as lease expenses will shift from operational costs to depreciation and interest, complicating financial assessments and covenant calculations.
• Timeline for Implementation: Although the rules take effect from January 2026, Businesses should begin preparing now to understand how these changes will impact their 2025 financial statements.
• Engagement with Advisors: Ongoing dialogue with financial advisors is essential for companies to navigate these changes effectively. Organisations should seek guidance to ensure they are well-prepared for the upcoming updates in financial reporting.

What you can do now

As businesses in the technology sector prepare for the implementation of FRED 82, it’s essential to take proactive steps as early as possible to navigate the changes effectively. There are several steps you can take now to minimise any future impact:

1. Conduct a Comprehensive Impact Assessment: Assess the specific impact of FRED 82 on your technology company’s revenue recognition policies and financial statements
2. Update Systems and Processes: Implement necessary changes to accounting systems and processes to align with the requirements of FRED 82
3. Provide Training and Awareness: Ensure that relevant teams within the organisation are well-informed about the changes and receive adequate training to comply with the new standards
4.  Regularly Monitor and Review: Establish a framework for ongoing monitoring and review of revenue recognition policies to adapt to any emerging challenges or changes in business practices

How we can help

The changes to these limits could impact what reporting your company needs to do – you should ensure that the company currently meets its reporting obligations, including the audit requirement, and monitor these changes.

These changes are more important given the proposed changes to FRS102 and the additional accounting requirements. Companies which are currently small but will be deemed micro under these size limit changes will be able to avail themselves of some of the accounting changes.

We recently held a webinar designed to give further insight into the proposed accounting changes and what you can do to prepare. We will also be holding more events over the course of 2024 to help you get ready for these changes.

Contact us

If you would like to discuss FRED82, or to confirm how this impacts your company, please get in touch with your usual Blick Rothenberg contact, or Nick and Simon Rothenberg using the form below.