Major FRS 102 Changes Take Effect in Three Months: What Companies Need to Know
With Major FRS 102 changes on the horizon, companies have just three months left to prepare for the most significant accounting reform in a decade, as the revised FRS 102 standards come into effect on 1 January 2026.
The Financial Reporting Council’s (FRC) 2024 Periodic Review introduces sweeping changes to revenue recognition, lease accounting, and disclosure requirements under UK GAAP. The new rules are designed to bring UK financial reporting closer to international standards, increase transparency, and also modernise how companies present their accounts.
Key FRS 102 Changes for 2026
Revenue Recognition Aligned with IFRS 15
Under the new FRS 102 revenue recognition model, companies will need to apply a simplified version of IFRS 15’s five-step framework. This means:
- Identifying contracts with customers
- Recognising performance obligations
- Determining and also allocating transaction prices
- Recognising revenue over time or at a point in time
This change aims to provide clearer guidance and improve comparability across industries.
Lease Accounting: On-Balance Sheet Requirement
The FRS 102 lease accounting rules are also changing. Most leases are now required to appear on the balance sheet. Companies will record a right-of-use asset and lease liability, ending the old off-balance sheet operating lease treatment.
This may affect key metrics such as EBITDA, leverage ratios, and debt covenants.
Who Will Be Affected by the FRS 102 Update
- UK companies reporting under FRS 102 or FRS 105
- SMEs with complex service contracts
- Companies with property or equipment leases
- Charities and not-for-profits
Any companies not already reporting under IFRS should review how the changes to FRS 102 in 2026 will affect their reporting, forecasts, and disclosures.
How to Prepare for FRS 102 Changes
Perform an FRS 102 Impact Assessment
Identify how your revenue streams and lease agreements will be affected. Consider system and reporting adjustments well ahead of the deadline. Take advice from a Chartered Accountant, such as ourselves, if required.
Engage Stakeholders Early
Communicate expected impacts to lenders, investors, and boards, especially if loan covenants or budgets rely on existing accounting treatment.
Update Internal Systems and Controls
- Standardise contract and lease data
- Revise accounting policies and reporting templates
- Train finance teams on the updated requirements
- Review tax implications and forecasting tools
Use Official Guidance
The FRC and ICAEW offer detailed resources, webinars, and FAQs to support businesses in achieving full FRS 102 compliance.
Timeline and Early Adoption Options
The FRS 102 changes take effect from 1 January 2026 for accounting periods beginning on or after that date.
Early adoption may be allowed for some entities, but companies must carefully consider the disclosure implications and transition reliefs.
Start Early to Stay Compliant: contact Alexander & Co for assistance with the FRS 102 changes
The FRS 102 update 2026 is a landmark change. Companies that act early will be best placed to manage the transition smoothly, avoid compliance risks, and maintain investor confidence.
Alexander & Co can support clients through impact assessments, system updates, and training for finance teams.
Should you wish to use our accounting services, please get in touch to speak to one of our accounting specialists today:
Telephone: 0161 832 4841 or 0207 167 7220
Email: info@alexander.co.uk
Alternatively, you can use the contact form on this page.
Frequently Asked Questions FAQs
Q1: What is UK GAPP?
A: UK GAAP is the framework of accounting standards set by the Financial Reporting Council (FRC) that governs how companies in the UK prepare their financial statements. It ensures transparency, consistency, and comparability in reporting through a series of Financial Reporting Standards (FRS). These are tailored to different business sizes and complexities.
Q2: When do the new FRS 102 rules come into effect?
A: The new FRS 102 rules apply to accounting periods beginning on or after 1 January 2026.
Q3: Who will be affected by the FRS 102 update?
A: Most UK businesses that use UK GAAP, including SMEs, micro-entities, and not-for-profits.
Q4: What are the main FRS 102 changes in 2026?
A: Key changes include a new revenue recognition model aligned with IFRS 15 and lease accounting moving on balance sheet.
Q5: Can businesses adopt FRS 102 early?
A: Yes, early adoption may be permitted, but businesses should consider disclosure requirements carefully.
Q6: How can businesses prepare for the FRS 102 changes?
A: Conduct an impact assessment, update systems, train staff, and also engage with lenders and stakeholders early.
