FRS 102 changes: what could look different in your 2026 accounts?
For many businesses preparing accounts under FRS 102, the 2026 year-end will be the first time they report under some of the most significant changes to UK GAAP in recent years.
Most of the amendments introduced through the FRS 102 Periodic Review 2024 apply to accounting periods beginning on or after 1 January 2026. The most significant changes for many businesses relate to lease accounting and revenue recognition.
For a company with a 31 December year-end, that means the impact may start to become visible in the accounts being prepared over the coming months.
The changes are technical, but their effects may be very practical. Assets and liabilities may look different, the timing of reported revenue may change and businesses may need more information about leases and customer contracts than they have traditionally collected.
Understanding those issues before the year-end should make the accounts preparation and audit process considerably easier.
What changed under FRS 102 in 2026?
The Financial Reporting Council's Periodic Review introduced changes across FRS 102, with revised requirements for revenue and leases among the most significant.
For lessees, the previous distinction between operating and finance leases has been removed. Most leases now result in a right-of-use asset and lease liability being recognised on the balance sheet, although exemptions are available, including for certain short-term leases and leases of low-value assets.
Revenue recognition has also changed substantially. The rules now focus on the promises made to a customer, the amount expected in return and when control of the goods or services passes to the customer.
These changes do not affect every business in the same way. Their importance will depend on the contracts, leases and transactions specific to the organisation.
Why could leases look different in your 2026 accounts?
Under the revised FRS 102 requirements, many leases that previously appeared mainly as a rental expense will now create an asset and liability on the balance sheet.
For businesses with substantial leased premises, vehicles or equipment, this can change the appearance of the financial statements.
The FRC says entities with leases previously treated as operating leases are likely to see higher reported assets and liabilities, whilst rental expenses are replaced by depreciation and interest charges.
That matters beyond the accounting entry itself.
Management may need to consider whether the changes affect financial ratios, banking information, management reporting or the way results are explained to shareholders and other users of the accounts.
A business may still be paying exactly the same rent each month. The way that lease appears in its financial statements could nevertheless be different.
Healthcare businesses
Healthcare businesses may have leases for clinics, surgeries, specialist equipment, vehicles or other premises.
Where those leases are material, management should make sure the underlying agreements are readily available and that key details such as lease periods, payments, renewal options and other relevant terms can be identified.
Professional services firms
Professional firms with substantial office leases may also see a more visible balance-sheet impact.
The accounting change does not alter the commercial cost of occupying those premises, but it may change the presentation of the firm's assets, liabilities and expenses.
How has FRS 102 revenue recognition changed?
The revised rules introduce a single model for revenue from contracts with customers.
At a high level, businesses need to consider what they have promised to deliver to the customer, determine the transaction price, allocate that price to the relevant performance obligations and recognise revenue when or as those obligations are satisfied.
For a straightforward sale of goods, the conclusion may remain relatively simple.
Greater attention may be needed where contracts include several services, variable fees, milestones, work delivered over time or arrangements that run across accounting periods.
This is particularly relevant for businesses where the invoice date does not necessarily tell the full story about when the underlying service has been delivered.
Professional services firms
A professional services firm might agree a fixed fee covering several stages of a project.
The accounting question is then about the nature of the promises made to the client and when those services are delivered.
That may require businesses to look more closely at engagement terms, project progress and how fees are structured.
It also makes reliable work-in-progress information increasingly important.
Construction businesses
Construction contracts can involve work delivered over an extended period, variations, milestone payments and variable amounts.
The revised revenue model means the contractual terms and the substance of what is being delivered need careful consideration.
Good project information matters here. Finance teams need to be able to connect the accounting treatment with what is actually happening on site and what has been agreed commercially with the customer.
Why should businesses look at this before year-end?
Waiting until the accounts are being prepared can create unnecessary pressure.
By then, the finance team may be trying to reconstruct information about contracts signed months earlier or find lease information that sits elsewhere in the business.
A better approach is to identify the areas affected before the reporting date.
For leases, that could mean creating a complete list of relevant agreements and checking that the information required for the accounting calculation is available.
For revenue, it may mean reviewing significant or unusual customer contracts and understanding whether the current accounting treatment remains appropriate under the revised requirements.
For audited businesses, doing that work early also means the reasoning and supporting evidence can be discussed before the year-end audit is under way.
What could the changes mean for management information?
Statutory accounts should not exist in isolation from the information management uses to run the business.
If the accounting treatment of a significant lease changes, management should understand why the statutory balance sheet now looks different.
If revenue recognition changes, it is worth considering whether internal reporting still provides a clear picture of sales, work completed, WIP and project profitability.
This is particularly important where management accounts and statutory accounts serve different purposes.
A monthly management report can still focus on the information the leadership team needs to make decisions. The important point is that management understands how that information relates to the final statutory position.
What should businesses review now?
Start with the areas most likely to create a material impact.
Review significant leases and make sure the underlying agreements are complete and accessible. Look at customer contracts that extend over time, contain several services or include variable fees and milestones.
Finance teams should also consider whether their systems currently capture the information needed to support the new calculations.
The aim is not to turn every business owner into a technical accountant. It is to avoid reaching year-end with an accounting change that management has not anticipated and information that is difficult to recover.
Preparing for your 2026 year-end
FRS 102 is ultimately a financial reporting standard, but changes in reporting can highlight wider issues around systems, contracts and financial information.
A business that understands its leases, maintains good contract information and can explain how revenue is earned is already in a stronger position to deal with the new requirements.
For businesses approaching their first year-end under the amended standard, the sensible starting point is to identify where the changes apply and what information will be needed.
That creates time to resolve questions before they become year-end problems.
At DSK Partners, we work with businesses to understand their financial reporting requirements, prepare for year-end and make sure the information behind the accounts is robust.
If you are unsure how the FRS 102 changes could affect your 2026 accounts, speak to our team.
Frequently asked questions about the FRS 102 changes
When did the new FRS 102 rules take effect?
Most of the Periodic Review 2024 amendments apply to accounting periods beginning on or after 1 January 2026, although there are exceptions and some amendments have different effective dates.
What are the biggest FRS 102 changes for businesses?
Two of the most significant changes are the revised rules for lease accounting and revenue from contracts with customers.
Do operating leases now appear on the balance sheet?
For lessees, most leases are now recognised through a right-of-use asset and lease liability. There are recognition exemptions, including for qualifying short-term leases and leases where the underlying asset is of low value.
Has FRS 102 revenue recognition changed?
Yes. The revised Section 23 uses a five-step model for recognising revenue from contracts with customers, based on the transfer of promised goods or services.
Which businesses should review FRS 102 before their 2026 year-end?
Businesses preparing accounts under FRS 102 should consider which amendments apply to them. Companies with significant leases or more complex customer contracts should pay particular attention to the revised Sections 20 and 23.
How can DSK Partners help with FRS 102?
DSK can help businesses assess the impact of the changes, review relevant accounting information and contracts, prepare for the year-end process and address potential issues before the accounts or audit are underway.