UK
Ireland
Financial Reporting Standards: FRS 102 is changing
In 2024, the FRC published amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs (the periodic review). The periodic review introduced changes to FRSs, notably with significant changes to FRS 102, including key changes to Section 1A Small entities. In some cases, similar changes are made to FRS 105 Financial Reporting Standard.
The amendments significantly change how entities recognise revenue and account for operating leases, which are brought on balance sheet.
Most of the changes are effective for periods beginning on or after 1 January 2026. For the majority of companies, the first set of accounts prepared under the new requirements will be 31 December 2026, unless a short period is applied.
Join our webinar
With only a matter of months until the latest changes go live, now is the time to act. Our accounting advisory experts will share key insights and practical experiences of the challenges in transitioning to the new requirements to help you map out your implementation strategy. Join our webinar and get prepared for the upcoming FRS 102 updates.
Frequently asked questions
Who is affected by the FRS 102 changes and how?
Whilst businesses in certain industries and sectors will see more of an impact – all entities applying FRS 102 are affected.
Regardless of the impact, auditors and readers of the financial statements will expect companies to be able to demonstrate how they have applied the new changes and how these apply by way of internal analysis and financial statement disclosures.
- Affect key metrics, such as EBITDA, profit, net assets and net debt
- Impact on debt covenants – tied to EBITDA, net debt, interest cover, liquidity ratios
- Consequences for remuneration and reward structures (i.e. bonus pots, profit shares, share schemes and earn out payments) where based on KPIs impacted by the changes
- Ability to pay dividends if revenue is recognised at a later date and profits levels fall
- Potential breach of size thresholds requiring increased disclosures or audit requirement as a consequence of increase in gross assets
What do I need to do now to prepare?
Impact assessment - Entities are advised to conduct a thorough assessment to understand the full implications of this changes which will help inform next steps. An impact assessment, conducted by S&W, can support you appropriately with this.
Data gathering and contract analysis - Start collecting revenue and lease contracts and ensuring that you have complete population and summarising the data.
Engage with stakeholders and lenders - Understand how they will respond to the amendments, proactivity can help avoid difficult conversations and consequences later down the line.
Develop an implementation plan – Appoint project sponsor and start thinking about:
- What capacity and capability do we have in-house or do we need additional expert support to take us from where we are now to being fully compliant?
- Any training needs? Stakeholders, lenders, finance and operational teams (commercial sales, property, legal)
- Will systems and processes need to change as a consequence?
- How am I going to collate the data required to produce the initial calculations and manage on an ongoing basis?
- Do I need to be thinking about and engaging with vendors for a technology solution?
- What accounting policy choices am I going to take on transition?
- Is there any sensitivity to providing new disclosure requirements, and commercially how might this be managed?
Revenue
The changes introduce a single comprehensive model for all types of revenue, with a new ‘five-step approach’ being used. Entities with customer contracts that are complex or long-term in nature will see the greatest impacts.
Technical overview
FRS 102 period review amendments
The upcoming changes represent the largest revision to UK GAAP since its launch. Read our comprehensive guide to the FRS 102 amendments.
How can we help?
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Impact assessment
We can support with evaluating the potential impacts of the changes to revenue and leases on your business, impacted metrics and design appropriate transition plans for your businesses.
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Training/workshops
Tailored trainings/workshops for finance and operations teams on the new requirements and how they apply to your business.
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Data gathering and software selection
We can assist with the extraction of relevant information from contracts and support with vendor software selection process.
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Accounting policies and papers
We can prepare/review your revenue accounting papers/policies and support with the key accounting judgements.
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Quantification
We can prepare/review of model calculations to apply the new accounting requirements to your revenue and lease contracts.
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Systems and processes
Assessing the impact on your systems, processes and controls, including updating chart of accounts, designing new processes to identify and capture required data.
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Disclosure requirements
We can identify the disclosure impacts for your business and assist with preparing the revised disclosures to comply with the changes.
Start the conversation
For more information on how S&W can help you to navigate the complexities of the FRS 102 amendments, or to book in your impact assessment, please contact Dominic Longley, Partner in Accounting Advisory.
