Is your business ready for the FRS 102 changes?

Throughout the course of this year, businesses that report under UK GAAP will be steadily impacted by the changes to FRS 102.

Accounting for revenue and leases will now look notably different and the changes will impact most entities, including small and medium-sized businesses.

As the changes impact accounting periods commencing on or after 1 January 2026, the time has come to check your systems to ensure that your financial reporting is still compliant.

What are the FRS 102 changes?

The changes being made to revenue recognition and lease accounting are some of the most notable brought about by the revision to FRS 102.

Revenue will now need to be recognised using a five-step model that will change the focus away from the transfer of risks and rewards and instead place it on when control of goods or services passes to the customer.

If you have not already done so, it will be necessary to review all of your customer contracts, particularly any that involve bundled services, variable consideration, warranties or contract modifications.

Another big target for the reforms is lease accounting.

Your balance sheet is set to get a bit busier as most leases will now need to be recognised on it through a right-of-use asset and a corresponding lease liability.

Not every lease will be making the jump though as some short-term leases and leases for low-value assets will be unaffected by the reforms.

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?

At whatever point in the year your accounting period commences, you should be aware that the changes are coming and respond accordingly.

This will mean determining your opening balance to ensure that it is still calculated correctly.

Using the data from the previous year, you can review your lease assets and liabilities to ensure that you know what needs adjusting.

Customer contracts and lease agreements should be updated to ensure they are being accounted for correctly.

New requirements are always a good signal to review existing systems and processes to ensure that everything is still accurate and appropriate.

You may need to adopt a more robust system in order to keep up with the ongoing assessment of leases, discount rates and contract changes.

Additionally, the new measures may alter the metrics that you have been using to gauge your business’s success, such as EBITDA, profit and net debt, so must be reviewed carefully.

Any bank covenants, incentive arrangements or earn-out agreements will also need a review to ensure that you are remaining compliant.

As different businesses will be affected by the changes at different points in the year, you may find that you are already dealing with companies that have begun complying with the new FRS 102 rules.

They may have requested information in a different format than what you are used to or may be presenting information to you differently.

You may wish to take inspiration from this when the time comes to update your own systems.

If you have any questions or concerns about adapting to the new FRS 102 requirements, then our team is here to help.

We can work with you to review your existing systems and ensure they are still sufficient for purpose and advise on changes when necessary.

Eventually, the new FRS 102 requirements will feel normal and you will be confident in handling them.

Until then, we are here to give you the confidence to stay compliant.