Navigating the Upcoming Changes to FRS 102: What You Need to Know

The Financial Reporting Council (FRC) has announced significant amendments to FRS 102, set to take effect from 1 January 2026. These changes aim to align UK GAAP more closely with international accounting standards, bringing a fresh wave of updates that businesses need to prepare for. Here’s a detailed look at what’s coming and how it might impact your financial reporting.

Key Changes to FRS 102

The amendments to FRS 102 introduce several important updates, including a new model for revenue recognition and on-balance sheet lease accounting, highlighting:

• Revenue recognition: The new model aligns with IFRS 15, introducing a five-step process for recognising revenue from contracts with customers. This change will require businesses to review their revenue contracts and apply the new model, potentially impacting the timing of revenue recognition.
• Lease accounting: Based on IFRS 16, the new lease accounting model requires a lessee to recognise leases on the balance sheet as a right-of-use asset and a lease liability. This change will affect EBITDA and key financial metrics, with exemptions available for short-term leases and leases of low-value assets.
• Other amendments: The updates also include modifications to fair value measurement, uncertain tax positions, and business combinations. A revised Section 2 aligns with the IASB’s Conceptual Framework, providing a more consistent approach to financial reporting.

Implications for businesses

These changes are expected to have a significant impact on financial reporting for many businesses. The new revenue recognition model will require careful analysis of contracts, while the lease accounting changes will bring more transparency to lease obligations. Businesses will need to update their accounting policies and systems to comply with the new standards.

Preparing for the transition

To ensure a smooth transition, businesses should start preparing now, with the following considerations:

• Review contracts - Analyse existing revenue contracts to understand how the new revenue recognition model will affect your financial statements.
• Update systems - Ensure your accounting systems can handle the new lease accounting requirements and other amendments.
• Training - Provide training for your finance team to ensure they are familiar with the new standards and can apply them correctly.
• Consult advisors - Work with your advisors to develop a comprehensive plan for implementing the changes and addressing any potential challenges.

Looking Ahead

The FRC’s amendments to FRS 102 represent a significant step towards aligning UK GAAP with international standards. By preparing early and staying informed, businesses can navigate these changes effectively and ensure compliance with the new requirements.

Our team of experienced professionals are here to help you navigate these changes and ensure a smooth transition. If you need expert advice on how these changes will impact your business, don't hesitate to speak to your usual contact at James Cowper Kreston. Alternatively, contact our Audit & Assurance team here to discuss your specific circumstances and how we can support you in adapting to the new FRS 102 requirements, so that we can help maximise your potential.