FRS 102
If you run a UK business, the changes to the FRS 102 accounting standard could have a significant impact.
With the amended FRS 102 accounting standard becoming mandatory for periods beginning on or after 1 January 2026, the transition window for companies is shrinking.
The good news is that with the right plan in place, your core work can be delivered in good time for reporting under the new rules.
Preparing for the new FRS 102 rules
Our experts in FRS 102 are here to help you stay ahead. In our video guides, Co-Head of Audit, Katherine Rose, and Head of Audit Excellence, Aron Kleiman, will give you an overview of what’s changing, drill down into the changes to lease accounting and revenue recognition, and share practical tips on how to ensure your business is ready.
Our summary of the main changes
Revenue recognition
Key impact summary:
- IFRS 15 five step model replaces old UK GAAP revenue recognition concepts with some key simplifications compared to IFRS Recognition at a “point in time” vs “over time”
- Contract costs taken into account
- Disclosures aligned to “IFRS for SMEs”
- Optional restatement of comparative information
Lease accounting
Key impact summary:
Lessee accounting
- Based on the IFRS 16 on-balance sheet model
- Recognition of right-of-use asset and lease liability
- Operating lease expense replaced with depreciation on right-of-use asset and interest charge on lease liability
- Cashflows discounted using an ‘obtainable borrowing rate’
- Increased disclosures
- Restatement of comparatives not required
Lessor accounting largely unchanged
What construction and property businesses need to know
Nick Bishop and Peter Alabi focus on how the updated FRS 102 standard affects long term contracts, and what this means in practice for construction and property businesses.
A key theme is the importance of contract terms. Businesses will need closer alignment between legal and finance teams, as contract wording will directly influence the accounting outcome. Reviewing existing contracts and involving finance teams earlier in the process will be critical as organisations prepare for the change.
For more on FRS 102 watch the replay of our webinar: A closer look at changes to FRS 102.
Lease accounting under FRS 102
Unpicking how the FRS 102 changes will affect how businesses account for operating leases by bringing them onto their balance sheets.
Find out about the potential impact on your business metrics, and how you and your team should be getting ready.
Revenue recognition under FRS 102
Explaining how the changes to FRS 102 will alter how businesses recognise revenue.
Learn about the new five-step model, how your business could be impacted, and the actions you should take to get ready.
What should firms do to prepare for FRS 102 – We recommend following these steps
Scoping
The foundation of a smooth transition is identifying exactly what is affected.
- Identify affected entities and contracts. If your business has significant lease arrangements or complex revenue contracts, you should begin this as soon as possible
- Assess practical expedients for transitional or ongoing benefit, such as exemptions for short-term leases (12 months or less) and low-value assets
Gathering Data
Your finance team will need more granular information than before.
- Compile data on lease terms, renewal options, variable rents, revenue contracts, performance obligations and termination rights
Completing this repository early will save you time and uncertainty later. It will also enable accurate transition calculations as your next step.
Transition calculations
This is where technical adjustments are determined.
Key judgements and estimates are made at this stage and should be fully documented, as accuracy here underpins audit readiness.
- Calculate and recognise lease liabilities at present value, and right-of-use assets applying chosen expedients
- Reassess revenue timing under revenue timing under the new five-step model (listed in our article here) focussing on transfer of control, and calculate any tax or deferred tax impacts
Tax implications
The foundation of a smooth transition is identifying exactly what is affected.
- Identify affected entities and contracts. If your business has significant lease arrangements or complex revenue contracts, you should begin this as soon as possible
- Assess practical expedients for transitional or ongoing benefit, such as exemptions for short-term leases (12 months or less) and low-value assets
Systems & controls
Your finance team will need more granular information than before.
- Compile data on lease terms, renewal options, variable rents, revenue contracts, performance obligations and termination rights
Completing this repository early will save you time and uncertainty later. It will also enable accurate transition calculations as your next step.
Disclosure preparation
This is where technical adjustments are determined.
Key judgements and estimates are made at this stage and should be fully documented, as accuracy here underpins audit readiness.
- Calculate and recognise lease liabilities at present value, and right-of-use assets applying chosen expedients
- Reassess revenue timing under revenue timing under the new five-step model (listed in our article here) focussing on transfer of control, and calculate any tax or deferred tax impacts
Communication is key
To help this process run as smoothly as possible:
Engage early with auditors to confirm interpretations and avoid last-minute adjustments
Share impacts internally across finance and operations and externally with auditors, lenders and investors to avoid surprises
Next steps
The changes introduced by the latest amendments to FRS 102 will require changes to systems and processes which will make the short implementation timeframe complex and expensive. It is highly recommended that companies act early and perform a detailed impact assessment.
Where multiple or complex revenue or leasing arrangements exist, the impact assessment should initially focus on the primary financial statement impact.
However, it is important to understand that implementation will go beyond a desktop exercise. A project-based approach should be applied, with a full implementation timetable and plan assessing the impact across:
- Teams, systems and processes requirements in order to capture relevant data appropriately to ensure complete and accurate accounting. As it relates to revenue, collating and analysing customer contracts, and for leases, ensuring data complete and accurate with any lease modifications post-transition, communicated in a timely manner.
- Financial performance and KPIs, including monthly and annual financial results and annual reporting disclosures.
- Internal and external reporting timetables and month end procedures.
- Key stakeholders and communication strategy.
- Any debt covenants included in lending arrangements.
How BKL can help
With increased admin, more complex reporting requirements and new calculations to get used to, we appreciate how daunting the updated FRS 102 rules may feel.
We’re experienced at guiding business owners and their teams through the practical impacts of changes to accounting standards. We’re here to help you to navigate the lease and revenue changes – from explaining the effect on your numbers including taxation through to improving your systems and processes – so that you maintain clear, compliant financial reporting as you take your business forward.
For a chat about how we can help your business to prepare for the new accounting standards, contact your usual BKL contact or one of our specialists below.
Our experts
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Frequently asked questions: FRS 102
What is FRS 102 in the UK and who needs to apply it?
FRS 102 is the main UK accounting standard used by companies that are not reporting under IFRS or FRS 105. It sets out how financial statements should recognise income, costs, assets and liabilities.
It applies to most medium-sized and large private companies, as well as many groups, charities and financial services businesses. If your UK entity prepares statutory accounts outside of IFRS, FRS 102 is usually the relevant framework.
What are the main changes to FRS 102 in 2026?
The 2026 updates to FRS 102 introduce three main areas of change:
- Revenue recognition aligned more closely with IFRS 15
- Lease accounting requiring most leases on the balance sheet
- Additional disclosures around financial instruments and fair value
These changes affect both how figures are calculated and how they are presented in the accounts.
When do the new FRS 102 rules come into force?
The updated FRS 102 applies for accounting periods beginning on or after 1 January 2026.
As of April 2026, businesses are either:
- implementing the new rules in current reporting periods, or
- preparing opening balances and comparatives
This is now a live reporting requirement rather than a future change.
How does FRS 102 revenue recognition work under the new rules?
Revenue under FRS 102 is now recognised based on when control of goods or services transfers to the customer.
This requires businesses to:
- identify performance obligations within contracts
- allocate revenue to those obligations
- recognise income as each obligation is satisfied
For businesses with long-term contracts, bundled services or variable pricing, this can change both the timing and amount of revenue recognised.
How are leases accounted for under FRS 102 in 2026?
Under the updated FRS 102, most leases are recognised on the balance sheet.
Businesses must:
- record a right-of-use asset
- recognise a lease liability
- replace rental expense with depreciation and interest
This brings lease commitments into reported financial position and changes key metrics such as EBITDA and net assets.
Does FRS 102 affect tax, dividends or bank covenants?
While FRS 102 is an accounting standard, it can influence:
- Tax timing where profit recognition changes
- Bank covenants through shifts in EBITDA, net debt or gearing
- Dividends where distributable reserves are affected
These impacts depend on the specific facts, but they are often identified during transition modelling.
What should businesses do now to comply with FRS 102 changes?
As the rules now apply, most businesses should be in implementation.
Typical actions include:
- calculating transition adjustments and opening balances
- reviewing contracts for revenue treatment
- identifying and measuring lease liabilities
- updating accounting systems and processes
- preparing explanations for auditors and stakeholders
The focus is on getting the numbers right and being able to support them.
How difficult is it to transition to the new FRS 102?
The level of difficulty depends on the business.
It is generally more involved where there are:
- complex or long-term contracts
- multiple revenue streams
- significant leasing arrangements
The challenge is less about the rules themselves and more about applying them consistently using reliable data.
How does FRS 102 compare to IFRS after the 2026 changes?
FRS 102 is now more closely aligned with IFRS, particularly:
- revenue (similar to IFRS 15)
- leases (similar to IFRS 16)
However, FRS 102 remains a simplified framework, with fewer disclosures and some practical differences in application.
For groups reporting under both frameworks, the gap has narrowed but not disappeared.
Do small companies need to apply the new FRS 102 rules?
Yes—if a small company prepares accounts under FRS 102 (including Section 1A), the updated recognition and measurement rules still apply.
Only micro-entities using FRS 105 are largely unaffected.
Reduced disclosures do not remove the need to apply the updated accounting treatment.
What are the risks of not preparing for FRS 102 changes?
The main risks are operational and reporting issues rather than penalties.
These include:
- incomplete or inaccurate lease data
- inconsistent revenue recognition
- unexpected covenant breaches
- delays or disputes during audit
Most problems arise where changes are left too close to reporting deadlines.
How can BKL support FRS 102 implementation?
BKL supports businesses through the practical side of implementation.
This typically involves:
- reviewing real contracts and applying the rules
- modelling the financial impact
- helping finance teams apply consistent judgements
- supporting discussions with auditors and lenders
The focus is on making the outcome clear, supportable and manageable.
Where can I find guidance on FRS 102 changes in the UK?
BKL’s FRS 102 Hub brings together:
- detailed explanations of the changes
- practical examples and scenarios
- implementation timelines
- short videos covering key areas
It is designed to help businesses understand both the technical rules and how they apply in practice.