FRS 102 2026 changes: implications for firms and clients
- FRS 102 is undergoing its most significant update since it was first introduced. In March 2024, the Financial Reporting Council (FRC) issued amendments to FRS 102 and other FRSs following the conclusion of its second periodic review.
- Most changes take effect for accounting periods beginning on or after 1 January 2026, with early adoption permitted provided the 2026 amendments are applied at the same time. FRS 102 provides transitional arrangements.
- FRS 102 changes will mainly affect lease accounting, revenue recognition, and disclosure requirements for UK small entities, with potential impacts on financial reporting, KPIs, and bank covenants.
Key FRS 102 changes: leases and revenues
FRS 102 lease accounting changes
The most significant change is that, for lessees, there is no longer a distinction between operating and finance leases. As a result, most leases will be recognised on the balance sheet as a right-of-use asset and a corresponding lease liability. You can use exemptions for short-term leases and leases relating to low-value assets. Lessor accounting continues to distinguish between the operating and finance leases. Micro-entities are not affected by this lease accounting change.
FRS 102 revenue recognition changes
The amendments introduce a single comprehensive five-step model for revenue from contracts with customers. The model is based on identifying the goods or services promised to the customer and recognising revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange. FRS 105 will reflect the model in a simplified form.
Other important changes
While leases and revenue represent the most significant changes, practitioners should be aware of several other amendments.
Section 1A — increased disclosures for small entities
UK small entities currently benefit from reduced disclosure requirements under Section 1A of FRS 102 but will see an increase in effort as the revised standard specifies additional disclosures relating to going concern, provisions, contingencies, share-based payments, current and deferred taxes, leases, performance obligations and dividends, which are required, when relevant and material, in order to give a true and fair view. The position for small entities in the Republic of Ireland differs and remains linked to Irish company law requirements.
Revised Conceptual Framework and fair value measurement
Section 2 (Concepts and Pervasive Principles) has been entirely rewritten to align with the IASB’s Conceptual Framework for Financial Reporting, issued in 2018. A new Section 2A brings FRS 102’s fair value measurement guidance closer to IFRS 13, including guidance on markets, valuation techniques, inputs, and the reliability of fair value measurements.
Supplier finance arrangements
New disclosures about supplier finance arrangements in Section 7 (Statement of Cash Flows) of FRS 102 took effect earlier — for periods beginning on or after 1 January 2025, with early application permitted. Entities that use arrangements such as supply chain finance, payables finance or reverse factoring should ensure the required disclosures are considered.
The facility to report on supplier finance arrangements has already been built into the templates, UK FRS 102 version 31 and Republic of Ireland FRS 102 version 21.
Uncertain tax treatments
Section 29 now includes guidance on uncertain tax treatments, requiring entities to assume that tax authorities will examine amounts they have a right to examine and will have full knowledge of all related information.
Specialised activities
Section 34, Specialised Activities, has also been updated with a number of clarifications and consequential amendments.
What has not changed?
The Periodic Review 2024 amendments do not introduce the IFRS 9 expected credit loss model for financial asset impairment, nor do they introduce alignment with IFRS 17 Insurance Contracts.
What your clients may be asking
For many small and medium-sized entities (SMEs), the changes raise practical questions beyond technical compliance. Common concerns include whether existing operating leases will now appear on the balance sheet, whether customer contracts need to be reviewed, and whether reported figures used by banks or other stakeholders could change even where cash flows remain the same.
The answer will depend on the nature of the business, but SMEs with property, vehicle or equipment leases, more complex customer contracts, supplier finance arrangements, or Section 1A accounts may need to carry out additional preparation before the first affected year-end.
Preparing for FRS 102 2026 changes
Firms may wish to begin preparing clients for the revised FRS102 now rather than waiting until the first affected year-end. The priority is to identify which clients are most exposed to the changes and to gather the information needed to assess the impact, particularly around leases, revenue contracts, supplier finance arrangements, uncertain tax treatments, and Section 1A disclosures.
Firms should also consider the wider commercial impact. Bringing leases onto the balance sheet could affect gearing, EBITDA, net debt, and other measures, even where cash flows are unchanged, so loan covenants, management reporting and key performance indicators may need to be reviewed.
Disclosure checklists, accounts production templates and client information requests should be updated, and staff should be trained to identify the areas where judgement is required. Thomson Reuters UK accounts production templates, including Digita Accounts Production Advanced, will be updated in Summer 2026, supporting the revised disclosure and presentation requirements and helping firms apply the changes consistently
These will support the revised disclosure and presentation requirements, helping firms implement the changes consistently. In practice, the transition should be managed proactively, with clients educated early and key judgements documented, instead of being addressed only at year-end.
For many straightforward clients, the impact may be manageable. For clients with multiple leases, complex customer contracts, or Section 1A reporting, this revision calls for more preparation. Early planning and the right compliance software position you to deliver confident guidance when it matters most.
Learn more
Further details of the changes to FRS 102 can be found on the Financial Reporting Council’s website here: FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
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Sarah McCombe is a Product Manager at Thomson Reuters, working on Digita Accounts Production in the Digita Professional Suite. She supports firms in navigating regulatory changes and financial reporting requirements, including the latest FRS 102 2026 changes. |