Big changes to FRS 102 – What will you need to do to prepare?

FRS 102 is changing from January 2026 and the impact will be keenly felt by many businesses.

The way you recognise revenue and how leases appear on the balance sheet will change the timing of income, the size of reported liabilities and the information you must capture day-to-day.

If you prepare accounts under UK GAAP, now is the time to focus on the practical steps that stop these accounting changes from becoming a disruption to your operations.

Who is impacted by the changes to FRS 102?

It is worth confirming whether you are set to be impacted by the changes, and this is dependent on whether you are required to use FRS102.

FRS 102 applies to entities in the UK and Ireland that are not required to use IFRS and this includes:

• Medium and large private companies
• Small and medium enterprises that are not classified as micro-entities
• Non-public sector entities such as charities and partnerships

Notably, the following entities will not be using FRS 102:

• Listed companies (IFRS compliant)
• Micro-entities (FRS 105 compliant)
• Subsidiaries and parent companies in groups that qualify for reduced disclosure requirements (FRS 101 compliant)

What’s actually changing?

Historically, you recognised revenue when the risks and rewards of a sale transferred to a customer.

From 2026, the emphasis moves to when control of goods or services passes and this shift has a significant impact on your record-keeping responsibilities.

Instead of a single trigger, you will look more closely at the terms of each contract to discern what you have promised, when each promise is fulfilled and how the price is allocated across those promises.

This means that split invoices, partial deliveries, bundled goods and ongoing services need to be recorded more carefully than they were previously.

The aim of these reforms is to improve transparency, but it also means you must track contracts and delivery events more carefully.

There are significant changes to the ways that leases are handled too.

For accounting periods that start on or after 1 January 2026, all leases apart from short-term or those for low-value assets will need to be recognised on the balance sheet as both an asset and a liability.

That improves visibility of your commitments, but it will also increase your administrative requirements.

How will this change your record-keeping?

In order to stay compliant with the new changes, your accounting system will need to be more detailed and will need to capture all relevant information.

You will need a contract register that records the promises in each customer agreement, the transaction price and the dates you satisfy each promise.

Delivery notes, service completion evidence, credit notes and customer communications all become important audit trail items, so be sure that these are stored securely.

For leases, you’ll need to pull together start dates, terms, renewal options and any variable payments so the balance sheet entries can be calculated accurately.

As the changes are imminent, now is the time to prepare if you have not done so already.

You should review your contracts and leases to determine which will be impacted by the FRS 102 reforms and start making the changes now.

FRS 102’s reforms bring greater clarity and better comparability, but they also require a shift in administrative practices to remain compliant.

Our expert team can offer advice and guidance on how to get ready for the changes so that you do not get caught out.

Keep up to date with the FRS 102 changes by talking to our team today!