UK GAAP (FRS 102) Amendments – Effective 1 January 2026

The Financial Reporting Council (FRC) has issued significant amendments to FRS 102, aiming to align UK GAAP more closely with international financial reporting standards. These changes will impact revenue recognition, lease accounting, and other areas, enhancing transparency and comparability in financial reporting.

1. Revenue Recognition (Section 23)

• Adoption of a Five-Step Model: Entities must identify contracts, determine performance obligations, set transaction prices, allocate prices to obligations, and recognise revenue upon satisfaction of obligations.

• Impact: May alter the timing of revenue recognition, especially for contracts with bundled goods/services, variable considerations, or warranties.

• Transition: Entities can choose full retrospective application or a cumulative catch-up approach.

2. Lease Accounting (Section 20)

• On-Balance Sheet Recognition: Lessee must recognise a right-of-use asset and corresponding lease liability for most leases, eliminating the distinction between operating and finance leases.

• Exemptions: Short-term leases (12 months or less) and low-value assets.

• Impact: Changes in EBITDA, net debt ratios, and other key financial metrics.

• Transition: Comparatives need not be restated; cumulative effects can be adjusted in opening retained earnings.

3. Fair Value Measurement

• Clarification: Alignment with IFRS 13. Clarifies fair value definitions, valuation techniques, and inputs, enhancing consistency in measuring assets and liabilities.

4. Supplier Finance Arrangements

• New Disclosure Requirements: Entities must disclose terms, carrying amounts, and payment date ranges for liabilities under supplier finance arrangements.

• Effective Date: For periods beginning on or after 1 January 2025.

• Assess Impact: Evaluate how changes affect financial statements, KPIs, covenants, and stakeholder communications.

• Review Contracts: Analyse existing revenue and lease contracts to determine necessary adjustments.

• Train Staff: Educate finance teams on new standards and their application.

• Communicate with Stakeholders: Inform investors, lenders, and other stakeholders about potential impacts.

Our team are here to help you to navigate these changes, including:

• Facilitating workshops to help your finance teams and other stakeholders understand the changes
• Completing an impact assessment to identify which amendments impact your business, quantify the changes and communicate these to your stakeholders.
• Writing technical accounting papers and policies to apply the new standard to your business, including documenting key judgments and estimates
• Undertaking detailed revenue or lease contract evaluation
• Preparing financial statements which incorporate the new disclosure requirements.

Please get in touch with Neil Johnston to discuss how we can help your business prepare for the upcoming changes.