FRS 102 Changes in 2026: What Businesses Need to Know
Changes to FRS 102 are now in effect for accounting periods beginning on or after 1 January 2026.
If your organisation prepares its financial statements under FRS 102, the revised requirements could affect how you account for leases and revenue, as well as the figures and disclosures presented in your financial statements.
For some organisations, the impact may be limited. For others, the changes could affect reported assets and liabilities, the timing of revenue recognition and key financial measures.
The impact will depend on your contracts, lease arrangements and existing accounting policies. Understanding this now can help avoid surprises when it comes to preparing your financial statements.
Who do the changes apply to?
FRS 102 is the financial reporting standard used by many businesses and other organisations in Ireland and the UK.
Following its Periodic Review 2024, the Financial Reporting Council introduced a number of amendments to the standard. Most apply to accounting periods beginning on or after 1 January 2026.
For many businesses, 2026 will therefore be the first reporting period affected by the revised requirements.
FRS 102: What has changed?
Area | Previously | From 2026 |
Lease accounting | Operating and finance leases were treated differently by lessees. | The distinction has largely been removed for lessees, with most leases now recognised on the balance sheet as a right-of-use asset and lease liability, subject to exemptions. |
Lease expenses | Operating lease payments were generally recognised as rental expenses over the lease term. | For leases recognised on the balance sheet, the expense is generally split between depreciation and interest. |
Balance sheet impact | Operating leases were generally not recognised as assets and liabilities on the balance sheet. | More leases are recognised on the balance sheet, which may increase reported assets and liabilities. |
Revenue recognition | Revenue recognition followed the previous Section 23 requirements. | A new five-step model applies to revenue from contracts with customers. |
Customer contracts | Some straightforward contracts required relatively limited analysis. | Businesses may need to identify performance obligations, determine and allocate transaction prices and assess when each obligation is satisfied. |
Fair value | Fair value guidance was spread across different areas of FRS 102. | A dedicated Section 2A brings the requirements together and provides more detailed guidance. |
Financial information required | Existing systems and processes may have been sufficient to support previous accounting treatments. | Some businesses may need to capture additional information about leases, customer contracts, valuations and disclosures. |
More leases will appear on the balance sheet
Under revised Section 20, most leases will now be recognised on the balance sheet through a right-of-use asset and corresponding lease liability.
Exemptions remain for qualifying short-term leases and leases of low-value assets. Businesses should also review wider contracts, as some arrangements may contain a lease even where they are not formally described as one.
Why does this matter?
The changes may increase reported assets and liabilities and alter how lease costs appear in the accounts.
For leases recognised on the balance sheet, rental expenses will generally be replaced by depreciation and interest charges.
This can affect measures such as:
EBITDA
Gearing
Interest cover
Businesses with lending facilities should also consider whether the changes could affect financial covenants or other measures used by lenders.
Revenue recognition follows a new five-step model
Revised Section 23 introduces a five-step approach to recognising revenue from contracts with customers.
Businesses will need to:
Identify the contract with the customer.
Identify the separate performance obligations within the contract.
Determine the transaction price.
Allocate the transaction price to each performance obligation.
Recognise revenue when, or as, each performance obligation is satisfied.
For straightforward transactions, the accounting outcome may remain largely unchanged.
More complex contracts may require closer review, particularly where they include multiple goods or services, variable pricing, warranties, licences, long-term delivery arrangements or changes to the original contract.
For some businesses, this could affect when revenue is recognised and may require finance teams to capture additional information about customer contracts.
Other reporting changes
The amendments also introduce a dedicated Section 2A on fair value measurement, bringing the relevant requirements together and providing more detailed guidance on valuation techniques and inputs.
Changes to Section 29 also provide guidance on uncertain tax treatments, alongside a number of other amendments and clarifications throughout the standard.
Not every change will have the same impact on every organisation, but these areas should form part of a wider review of how the revised standard affects your financial reporting.
The impact goes beyond the year-end accounts
Preparing for the revised FRS 102 requirements is not simply a year-end accounting exercise.
Finance teams may need to gather information that was not previously required, apply new judgements and change how contracts and lease arrangements are reviewed.
Systems, processes and internal controls may also need to be updated to make sure the right information is captured accurately and consistently.
Changes to reported figures could also flow through to:
Budgets and forecasts
Management reporting
Key performance indicators
Loan covenants
Remuneration arrangements linked to financial measures
Discussions with lenders, investors and other stakeholders
Understanding these effects early gives your business more time to respond.
What should businesses do now?
If you have not already assessed the impact of the revised standard, now is the time to do so.
Key steps include:
Confirm when the revised FRS 102 requirements first apply to your organisation.
Build a complete register of your lease arrangements and identify contracts that may contain a lease.
Review key customer contracts against the new revenue recognition model.
Assess the potential effect on your financial statements and disclosures.
Consider the impact on key financial measures and loan covenants.
Review whether your accounting policies, systems, processes and controls need to change.
Make directors, lenders and other relevant stakeholders aware of significant changes before year end.
A focused review now can identify gaps early and give your team time to address them before the financial statements are prepared.
How UHY FDW can help
The revised FRS 102 requirements may affect businesses differently depending on their contracts, leases and existing accounting treatment.
Our team can help you understand what the changes mean for your organisation, assess the potential impact on leases and revenue recognition, and support you through the transition to the revised requirements.
Speak to our team about how the FRS 102 changes could affect your business and the steps you should take now.
