Financial Reporting Standard 102 (FRS 102) is the principal accounting standard in the UK and applies to medium and large companies, public benefit and other entities who are not required to apply (and do not voluntarily adopt, where applicable) IFRS, FRS 101, or FRS 105.
What's Happening, and What's The Impact?
Effective for accounting periods beginning on or after 1 January 2026, significant changes are being introduced to FRS 102. Small (or micro) businesses that currently apply section 1A of FRS 102 will also be affected by these changes.
The changes are intended to move accounting to a basis more aligned to international accounting standards. And two areas will see the biggest changes:
Revenue Recognition
- A five-step revenue recognition model will be implemented – using “promises” rather than “performance obligations”.
- Entities will need to review revenue contracts and apply the five-step model.
- In particular, you’ll need to consider the treatment for contracts that have bundles of goods/services, variable consideration, warranties, customer options, or significant financing components.
- No restatement of comparatives required.
- Micro entities applying FRS 105 may also be impacted by these changes to revenue recognition.
Leases
All leases are to be recognised on the balance sheet for lessees in a similar way to IFRS 16 ‘Leases’:
- As a right of use (RoU) asset and corresponding lease liability reflecting the obligation to make the lease payments.
- Lease expenses will need to be presented as depreciation and interest.
- Exemptions will be available for short term leases and leases of low-value assets.
- No restatement of comparatives required.
The forthcoming lease changes were covered by John Perry in this article about Changes To FRS102: Operating Leases
It can be seen from the above that FRS 102 could have a significant impact on EBITDA calculations and other key metrics. And with the potential to impact the timing of revenue recognition, the amendments may also lead to increased disclosures in financial statements from previous years, providing more information to the readers of your accounts, some of which may be sensitive.
What You Can Do Now
These amendments are likely to require some changes to systems and processes to be in place for 1 January 2026, which may involve updating charts of accounts and assessing system capabilities for example.
Early adoption is also available provided all amendments are applied at the same time.
We're Here To Help
To find out more about how FRS 102 will impact your business please contact one of the team on 0330 058 6559 or email hello@scruttonbland.co.uk