Upcoming Changes to FRS 102 in 2026 – Why Early Preparation is Essential for Your Business

FRS 102 is Changing in 2026 – And It's Going to Affect Your 2025 Financial Statements too!

From 1 January 2026, major revisions to FRS 102 will take effect, bringing the UK accounting standard in line with IFRS 15 (Revenue from Contracts) and IFRS 16 (Leases). These changes will significantly impact how companies recognise revenue and leases, affecting sectors from technology to construction, retail, and beyond.

Revenue: The revised standard introduces a new approach to revenue recognition and lease accounting. For instance, companies will now need to break down bundled services or contracts into specific performance obligations and recognise revenue as these obligations are met, rather than all at once.

As an example of this change if you’re a tech company selling software and service bundles, you’ll need to allocate revenue to each component (e.g., software licenses, ongoing support) and recognise it over time as those obligations are fulfilled. This could spread your revenue more gradually than the current practice, impacting your income statement. It will apply in many other sectors too, for instance a car dealership offering free services for a period of time, or construction companies with separate elements being completed over time.

Leases: Under current FRS 102, there are finance and operating leases, however under the revised FRS 102 there is no longer this distinction and almost all leases will now be brought on balance sheet, resulting in an increase in both assets (right-of-use assets) and liabilities (lease obligations). This will also lead to a change in your P&L, as instead of recognising lease expenses, you’ll now record depreciation on the asset and finance costs on the liability. This will impact key metrics like operating profit and EBITDA.

Early preparation is key therefore. If you haven’t started looking at the potential impacts yet, now is the time. The ripple effect of the new standard means that decisions made today will affect your financials statements presented next year!

Forecasting Impacts: By preparing now, you can build accurate financial forecasts, ensure compliance with bank covenants, and manage shareholder expectations ahead of time.

Stakeholder Communication: Restating financials could lead to fluctuations in key metrics, so clear communication with banks, investors, and other stakeholders is critical to avoid surprises.

So don't delay - review your contracts, leases, and revenue streams now to understand the full impact of the revised FRS 102 on your business.

Happy to chat to anyone about this - do reach out!