The new changes to FRS 102 will be felt by different businesses at different points throughout 2026.
This is due to the reforms impacting accounting periods starting on or after 1 January 2026.
By the end of the year, most businesses that report under UK GAAP will have needed to update their reporting to stay compliant.
Whatever stage of the process you are at, it is vital that you understand the changes to ensure that you are now managing things accurately.
What are the FRS 102 changes?
Of the changes made to FRS 102, the new way of handling revenue recognition and lease accounting may require the greatest focus to implement effectively.
It is now necessary to use a five-step model to recognise revenue and the focus will be placed on when control of goods or services passes to the customer rather than the transfer of risks and rewards.
In order to understand how this change will affect your particular business, you will need to review all of your customer contracts, particularly any that involve bundled services, variable consideration, warranties or contract modifications.
Lease accounting is also set for a notable update.
Your balance sheets may be more populated than previously, as most leases will need to be recognised on it through a right-of-use asset and a corresponding lease liability.
Not every lease will be pulled onto the balance sheet, as some leases for low-value assets and short-term leases will be unaffected by the change.
Property and vehicle leases will almost certainly require an update and they will affect your balance sheet and reported performance.
How can businesses prepare for the changes?
The start of your accounting period this year is when the changes will most notably impact you.
This means that if this is yet to happen, you should determine your opening balance is calculated correctly.
If you cast your eye over your previous year’s data, you can review your lease assets and liabilities to ensure that you know what needs adjusting.
Alongside this, updates may be necessary for customer contracts and lease agreements so that they are being accounted for correctly.
Whenever there are changes to requirements, it is a good time to review your systems and processes to ascertain whether you will remain compliant and if there are optimisations you can implement.
It may be time to adopt a more robust system in order to keep up with the ongoing assessment of leases, discount rates and contract changes.
Any metrics that you have been using to measure the success of your business, such as EBITDA, profit and net debt, may also be affected by the reforms, so will need revising to ensure they are still accurate.
Earn-out agreements, bank covenants and incentive agreements, should you have any, will need to be reviewed to ensure they are still compliant.
In your dealings with other businesses, you may have noticed that some of the information they are presenting looks different or they may be asking for information in different formats.
Where this happens, take inspiration from them as they are likely to be earlier adopters of the FRS 102 changes than you.
Our team is here to support businesses in getting ready for the changes to FRS 102 so that you can take the stress out of compliance.
Get in touch to make sure you are up-to-date with your new FRS 102 obligations.
