The revised version of FRS 102 has now come into effect for accounting periods starting on or after 1 January 2026 and it will affect how your business prepares accounts under UK GAAP.

These changes will affect how revenue and leases are accounted for and apply to most entities, including small and medium-sized businesses.

With the changes now in full force, your business must ensure your accounting systems and financial reporting are compliant.

What are the FRS 102 changes?

The most important changes to FRS 102 are to revenue recognition and lease accounting.

Revenue must now be recognised using a five-step model that focuses on when control of goods or services passes to the customer, rather than when risks and rewards transfer.

This has required many businesses to reassess customer contracts, particularly those involving bundled services, variable consideration, warranties or contract modifications.

Even where the timing of revenue recognition has not changed, the revised standard requires a greater level of analysis and documentation.

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

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

Although exemptions exist for short-term leases and leases of low-value assets, many property and vehicle leases will affect your balance sheet and reported performance.

What should businesses be reviewing now?

Any opening balances on or after January 1 2026 must be assessed to ensure they have been calculated correctly and in time for when their accounting period begins.

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

Businesses must remain aware of when their accounting period starts and seek financial advice to ensure their accounts and financial reporting is in order.

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

This includes identifying any leases embedded within service contracts.

Discount rates applied to lease liabilities should also be reassessed so that they are still appropriate under the new changes.

Will you need to update your systems?

Businesses must consider whether their existing systems and processes remain fit for purpose for the next accounting period.

As the ongoing assessment of leases, discount rates and contract changes may require you to use more robust solutions than those previously used.

In addition, the impact of the changes on metrics such as EBITDA, profit and net debt must be reviewed carefully.

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

How to stay compliant under the new changes?

The FRS 102 changes can be overwhelming and not every business has time to prepare 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.

Businesses’ lenders and investors will also be affected and you must maintain clear communication with them on any changes made.

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

Our expert team are here to support your businesses through the transition and review your calculations and recognition policies.

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

Businesses that seek prompt action and financial support can move forward with confidence under the new accounting framework.

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