FRS 102 Changes 2026
FRS 102 is a financial reporting standard which applies to entities that aren’t already applying IFRS, FRS 101 and FRS 105.
On 27th March 2024, the Financial Reporting Council released amendments to FRS 102 to bring the standards in closer alignment with International Financial Reporting Standards.
In this article, we’ll cover the key FRS 102 changes that came into effect this year (2026).
What Are The FRS 102 Changes?
Following the periodic review in 2024, changes have been made to FRS 102 which are effective for accounting periods beginning on or after 1st January 2026, except for supplier finance arrangements which were required from 1 January 2025.
The main updates relate to revenue recognition and lease accounting. However, there have also been other changes, which you can find on the FRC website here.
Section 23: Revenue Recognition
A five-step model has been set out for all contracts to provide a consistent framework for recognising revenue.
The objective is to ensure that revenue is recognised when control over the goods or services is transferred to the customer.
The five-step model:
- Identify contract(s) with a customer
- Identify performance obligations in the contract
- Determine transaction price
- Allocate transaction price to performance obligations in the contract
- Recognise revenue when (or as) the entity satisfies a performance obligation
The revised Section 23 also introduces enhanced disclosure requirements, promoting greater transparency in revenue reporting.
Impact
This could impact patterns of revenue recognition and therefore trading position/balance sheet values. It will most likely impact businesses that have long-term contracts, such as professional services and construction companies.
Exceptions
- Micro-entities (section 18 in FRS 105 contains a simplified version)
- Model can be applied to multiple similar contracts, instead of individually
Actions
You’ll need to analyse existing contracts to identify whether amended terms need to be issued, and apply the model to all contracts and revenue recognition moving forward.
There are 2 different approaches to apply this:
- Restate comparatives and apply new model to all contracts
- Apply model to incomplete contracts at the start of the current period and adjust reserves for any cumulative effect
Section 20: Leases
The traditional distinction between operating and finance leases has been eliminated for lessees, meaning you’ll need to recognise most leases on your balance sheet.
This involves recording a ‘right-of-use’ asset and a corresponding lease liability, representing the value of future lease payments.
Lease liability is the value of unpaid lease payments at the date of calculation, discounted by the interest rate implicit in the lease.
Right-of-use is made up of lease liability, adjusted for lease payments made prior to commencement, less any lease incentives received, including initial costs, estimates of removing the asset, and any non-exchange transactions.
Impact
- Increased gross asset values and reduced net current assets
- Rental payments will reduce the lease liability rather than recognised as an expense
- Depreciation charged as an expense to reduce the asset value
- Interest on lease liability will be charged over lease term
- Changes to key stats including EBITDA and net debt
- Debt covenants and performance-based renumeration schemes
Exemptions
Leases that can be left off the balance sheet:
- Short-term leases that have a term of 12 months or less and don’t contain a purchase option
- Low value leases – limit not specified (assets that are classed as not low value include real estate and motor vehicles)
Please note, other requirements of Section 20, such as disclosure requirements, still apply.
Micro-entities applying FRS 105 are not affected by these changes.
Actions
- Pull together a list of all leases and find the corresponding lease agreements
- Consider if any assets are eligible for exemption
- Record lease liability and ROU on balance sheet going forwards
- Regularly reassess e.g. when there is indexation, a rent review or changes to the lease terms
Get Help With FRS 102 Compliance
The changes to FRS 102 mean it’s more important than ever to accurately capture all relevant information relating to revenue and leases.
If you’re looking for financial tools that’ll help you stay compliant with your regulatory responsibilities, you might be interested in the Lease Accounting and Revenue Recognition modules in Sage Intacct:
- Lease Accounting: Automates calculations, centralises data, and ensures your business stays compliant with regulations like IFRS 16 and FRS 102.
- Revenue Recognition: Helps you automate revenue recognition tasks and manage changing requirements smarter with dual treatment and reporting.
If you’d like to find out more about Sage Intacct, contact us to arrange a chat about your requirements.
FRS 102 FAQs
What is FRS 102?
FRS 102 is a financial reporting standard for entities in the UK and Republic of Ireland which sets out how organisations must recognise, measure and disclose financial information.
What is a small entity under FRS 102?
- A) A company meeting the definition of a small company as set out in section 382 or 383 of the Companies Act and not excluded from the small companies regime by section 384.
- B) An LLP qualifying as small and not excluded from the small LLPs regime, as set out in LLP Regulations.
- C) Any other entity that would have met the criteria in (a) had it been a company incorporated under company law.
Which accounting software supports FRS 102 standards?
There are several accounting platforms that support FRS 102 standards, including Sage Intacct, Sage 50 and Sage Accounting, compare your options here.
This article is for general information and educational purposes only, and should not be relied upon as legal, tax, or professional financial advice.
Written by Jessica Allen, Marketing Executive at PKF Smith Cooper Systems
Last reviewed June 2026 by Julie Read, Marketing Manager at PKF Smith Cooper Systems
