The Future of Financial Reporting for Registered Providers: Preparing for FRED 82
14.03.2024
The upcoming changes in accounting standards, encapsulated in Financial Reporting Exposure Draft (FRED) 82, represent a shift in financial reporting for Registered Providers (RPs). As these changes are set to take effect in 2026, RPs must begin to prepare now to ensure they can not only comply with the new standards but also leverage these changes to enhance their operational and financial strategies.
Understanding the Implications of FRED 82
FRED 82 introduces comprehensive changes, most notably the requirement for all leases to be included on balance sheets and a new, more detailed revenue recognition model. These adjustments aim to increase transparency and accuracy in financial reporting. For RPs, whose operations often involve significant leasing activities and complex service delivery models, these changes are particularly impactful.
The change to include all leases on the balance sheets is designed to provide a clearer picture of an organisation's financial obligations. This visibility can affect everything from credit ratings to financial strategies, influencing how RPs are viewed by lenders and investors. It's a change that calls for a careful review of all current and future leasing agreements to ensure they are correctly categorised and recorded under the new standards.
Similarly, the new revenue recognition model requires RPs to recognise revenue as services are delivered, rather than when payments are received. This model necessitates a deep understanding of the contract terms and conditions associated with service deliveries, which in turn could require RPs to update their accounting systems and processes to accurately track and report revenue.
Strategic Preparation for 2026
With the 2026 deadline approaching, RPs should be taking proactive steps to prepare. This preparation involves more than just an understanding of the new standards—it requires a strategic review of existing processes and systems. RPs need to evaluate their current accounting software and internal controls to determine if they are adequate to meet the demands of the new reporting requirements, or if new solutions need to be implemented.
Education and training will play a critical role in this transition. Staff at all levels within RP organisations need to be aware of the changes and understand their implications. Investing in training for financial teams to navigate the new standards will be essential for seamless implementation.
In addition, RPs should begin to engage with their stakeholders—including investors, regulators, and tenants—about how these changes will impact their financial reporting and overall business operations. Clear communication can help manage expectations and mitigate concerns about the transition, particularly regarding how it might affect financial results and organizational performance.
Embracing the Changes for Long-term Benefits
Looking beyond compliance, these changes offer RPs the opportunity to enhance their financial health and operational transparency. With clearer financial data, RPs can make more informed decisions about investments, operational improvements, and growth strategies. This enhanced clarity can also bolster the confidence of external stakeholders, potentially leading to better investment terms and opportunities.
The changes brought by FRED 82 should not be viewed merely as a regulatory hurdle. Instead, they represent a significant opportunity for RPs to refine their financial reporting and strategic operations. By embracing these changes proactively, RPs can enhance their transparency, improve their strategic decision-making, and strengthen their position in the housing sector. The time to start preparing is now, ensuring a smooth transition and a robust future.