FRS 102 Updates 2026
In 2024, the FRC rolled out key updates to FRS 102 and other financial reporting standards in the UK and Ireland, marking a significant shift.
These changes aim to further align the UK accounting regime with the international regime. The two main updates are:
- A new five-step model for revenue recognition, aligned to IFRS 15: Revenue from Contracts with Customers, but with some simplifications. This is applicable for all UK GAAP prepared accounts, both FRS 102 and FRS 105
- Bringing almost all leases onto the balance sheet, aligned to IFRS 16: Leases, but with certain practical exemptions. This is only applicable for FRS 102 and not for micro-entities preparing FRS 105 accounts.
These changes are effective for periods beginning on or after 1 January 2026. For the majority of companies, the first set of accounts prepared under the new requirements will be for periods ending 31 December 2026 or after, unless a short period is applied.
You’ll find more details on the upcoming changes below, along with how we can support you through the transition:
Changes to revenue recognition
Revenue recognition will need to follow the five-step recognition model from IFRS 15. The stages are as follows:
- Identify the contract(s) with the customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations
- Recognise revenue when or as the entity satisfies the performance obligations
Changes to lease accounting
Most leases will now be shown on the balance sheet instead of the profit and loss account in line with IFRS 16, though there are some exemptions for short-term and low-value leases.This means recognising a “right of use” asset equal to the present value of future lease payments (less any incentives), which is then depreciated over the lease term. At the same time, a lease liability is recorded and reduced over time as payments are made, split between interest and principal.While the total profit impact over the life of the lease stays the same, the cost is now split into depreciation and interest and as such may be more heavily weighted towards the beginning of the agreement. This change could affect EBITDA and interest cover calculations.It will also increase both assets and liabilities, so if you have bank covenants in place, it’s worth discussing the impact with your lender.Good news: there’s no need to restate comparatives.
What should I do next?
Now is your time to start planning for the transition.
- Start by understanding how these changes could impact your financial statements and your business overall
- Once you have that understanding, conduct an impact assessment:
- This will highlight key areas affected
- It may reveal the need for changes to current processes and systems
- Some updates may need to be in place by the effective transition date
- Review the leases you currently have in place
- Identify and detail the distinct income streams that could be impacted by the revisions to the standards
How we can help
Our specialist team is ready to support you every step of the way to ensure you’re fully compliant with the new FRS 102 standards.Here’s how we can help:
- Expert advice on demand – Got questions? Our team is on hand to guide you through the changes and answer any queries
- Templates and practical guidance – We’ll provide tools and clear guidance to help you assess the impact and navigate the transition
- Review and reassurance – Already started? We can review your calculations and impact assessment to give you peace of mind that everything’s on track
- End-to-end support – We offer a full service to assess the impact and make the necessary adjustments to take away the hassle
