How will the new FRS 102 changes affect your accounts and financial reporting?

The revised version of FRS 102 came into effect for accounting periods starting on or after 1 January 2026 and has introduced important changes to how businesses prepare their accounts under UK GAAP.

Although these changes do not affect cash flow, they will alter how revenue, assets, liabilities and performance metrics are presented in financial statements.

With the changes now in full force, business must ensure their accounting systems and financial reporting are up to date.

What has changed under the revised FRS 102?

The most important changes to FRS 102 are to revenue recognition and lease accounting, both of which can affect the timing and presentation of profits.

Revenue must now be recognised using a five-step model that focuses on when control of goods or services passes on to the customer. This will now replace the previous approach that was based on risks and rewards.

As a result, businesses must reassess customer contracts, particularly those involving bundled services, variable consideration, warranties or contract modifications.

Even where the timing of revenue recognition remains the same, the level of analysis and documentation required has increased.

Lease accounting has also undergone major changes. Most leases must now be recognised on the balance sheet through a right-of-use asset and a corresponding lease liability.

Instead of recognising a single lease expense in the profit and loss account, you must now record depreciation of the asset and interest on the lease liability.

While exemptions do apply to short-term leases and leases of low-value assets, many property and vehicle leases will now affect your balance sheet and reported performance.

What should businesses be doing now?

Businesses must assess their opening balances on or after January 1 2026 and ensure they have been calculated correctly for when their accounting period begins.

This includes recognising lease assets and liabilities and making the required adjustments in retained earnings.

It is essential you know when your accounting period starts and seek financial advice to ensure your accounts and financial reporting is in order.

Customers’ contracts and lease agreements should be reviewed in full to ensure they are being accounted for correctly.

This includes identifying any leases embedded within service contracts.

Businesses should also consider whether their existing systems and processes remain suitable for the ongoing requirements.

Regular reassessment of leases, discount rates and contract changes may require you to use more robust solutions than those previously used.

How will the changes affect your finances?

Businesses must carefully reassess the impact of the changes on metrics such as EBITDA, profit and net debt.

This is particularly important where bank covenants, incentive arrangements or earn-out agreements are in place.

Any changes to financial reporting can feel overwhelming, especially as the implementation date has passed.

These changes also affect your lenders and investors and you must maintain clear communication throughout this process.

Financial results may differ and stakeholders should understand the reasons behind any movements.

How can you keep your finances compliant?

Some businesses may still have time to prepare, but others do not have that luxury as their accounting period may have already begun.

Businesses have a responsibility to keep their accounts and financial reporting compliant and must seek financial support if they are unsure when these requirements come into effect.

We can help support your businesses through the implementation and review of your calculations and recognition policies.

Our expert team can help implement lease accounting models and ensure your financial statements include the correct disclosures.

For expert financial advice and support, contact our team today.