As accountants we have been talking about the impact of the Financial Reporting Council’s (FRC) periodic review of FRS 102 for so long now and any of our clients who are thoroughly bored by this would be easily forgiven! With the proposed changes first being published in December 2022 there’s been quite a wait until mandatory implementation which applies for accounting periods beginning on or after 1 January 2026.
However, with the end of 2025 drawing near (yes, the seasonal chocolates are already on the supermarket shelves) now is the time to act!
The headline changes are:
- Leases (Section 20): Lessees must now recognise most leases on the balance sheet, reflecting a right-of-use asset and a corresponding lease liability.
- Revenue (Section 23): A new five-step model based on IFRS 15 replaces previous guidance, focusing on performance obligations and control transfer.
Other changes include revisions to Section 2 (Fair Value) and Clarifications across Sections 1A (Small Entities), 7 (Cash Flows), 26 (Share-based Payments), and 29 (Income Tax). Broadly the changes are designed to bring UK accounts prepared under FRS 102 more in line with UK companies reporting under International Financial Reporting Standards.
With many companies needing to reflect any changes to figures in their 2026 budgets and management accounts from January 2026, we are recommending that finance teams give thought to the potential impact these changes may have on their financial reporting.
Whilst bringing leases on to the balance sheet will result in increases to fixed assets and an increase in borrowings, it will also impact the P&L as previously leasing costs/rentals would have been reported within the costs to arrive at EBITDA but now they will essentially be reflected in increased depreciation and interest costs. These changes will affect gearing ratios and could possibly impact other banking covenants or profit related bonus calculations.
The new revenue recognition standard may not result in any significant adjustments for the majority of UK businesses, but it sets out a five-step comprehensive model for recognising revenue – essentially requiring entities to consider the components of what they are promising to deliver to their customers. The current version of FRS 102 sets out some recognition principals but leaves a lot of shades of grey when forming policies for accounting for revenue. The revised standard leaves less scope for difference of opinion and therefore it is important to review each income stream to consider whether any changes are required. ©2025 Kate King
We will be publishing further blogs to delve into these matters in more detail in coming weeks, but if you have any queries please get in touch with your usual team member or Kate King on kate.king@burgisbullock.com or 01926 451000.
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