FRS 102 2026 changes explained
On 1 January 2026, two significant changes came into effect regarding the preparation of accounts under FRS 102:
- Leases (for lessees): most leases are now recognised on the balance sheet.
- Revenue: a new five-step model applies to revenue from customer contracts.
Introduced by the FRC, the changes have been made with a view to improving consistency while keeping financial reporting proportionate to business size and complexity.
When will my accounts be affected?
The FRS 102 changes apply to accounting periods that begin on or after 1 January 2026. If your accounting period begins on 31 December, your first affected accounts will be for the year ending 31 December 2026. If your year end is 31 March, your first affected accounts will be for the year ending 31 March 2027.
What do the changes to FRS 102 mean for me?
The impact of the FRS 102 changes will depend on the size and complexity of your business:
- Smaller businesses with few leases and uncomplicated sales may not see much change. A premises lease could introduce new balance sheet figures.
- Larger businesses with significant lease portfolios will likely see changes in reported assets and liabilities, and may need to revise revenue timing for complex contracts.
Businesses most often see changes in the following areas:
- Principal vs agent: If a third party is involved in providing goods, businesses will need to determine whether they are a principal (recognising revenue as gross) or agent (recognising revenue as commission).
- Costs to obtain a contract: businesses may choose to recognise certain costs such as sales commissions as an asset if they are incurred only when the contract is obtained.
- Variable consideration: Rebates, refunds payable or performance bonuses receivable are included in revenue only to the extent that they are “highly probable”.
Changes to leases under FRS 102
The key change is that most leases will move onto the balance sheet. Under the revised Section 20, lessees generally recognise a right-of-use asset (the right to use the leased item) and a lease liability (the obligation to make lease payments).
Exemptions apply to short-term leases with a term of 12 months or less from the commencement date and no purchase option; and low-value asset leases, which exclude motor vehicles and real estate.
Leases recognised on the balance sheet are no longer presented as rent. Instead they will be split between depreciation of the right-of-use asset and interest expense on the lease liability.
Changes to revenue under FRS 102
Section 23 has also been revised to offer a five-step model:
- Identify the contract(s) with a customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognise revenue when (or as) the entity satisfies a performance obligation.
Help with navigating FRS 102
If you require assistance with identifying how the changes to FRS 102 will affect you, or you would like help to transition to the new model and ensure compliance, seek advice from a reputable accountant.
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