This year’s UK accounting news has been dominated by the Periodic review of FRS 102, which becomes effective for the periods beginning on or after 1 January 2026.

This is the most extensive update to the standard since its original publication, aligning certain rules with IFRS and refining additional guidance. We have been advising early adopters and those businesses that want to prepare ahead of time on the general impact assessment, revenue recognition and lease accounting, using our bespoke tools and software.

A few lessons have been learnt along the way which we wanted to share with those who have not started their transition review or are in the process:

Other Areas of Impact - it is a common misconception that the only areas of change are revenue and lease accounting. 29 other sections and Appendix of the standard have been reviewed. Some containing major changes, such as new fair value measurement appendix, some with minor but important amendments, such as measurement of losses on associates. Where applicable, your auditors are likely to want you to provide them with an assessment of whether each of those sections had an impact on your entity.

Revenue Analysis - revenue recognition is not a fast and easy exercise. Even for more straightforward contracts, you should not jump to step 5 of the new recognition model and conclude that there is no impact. The most obvious answer sometimes requires industry research and additional technical guidance to decide on the right conclusion. Documenting your analysis under each of the five steps is essential, even if you believe there is no impact. A lot of areas, such as performance obligations, require careful judgement – especially for those contracts containing multiple products or services.

Leases - the definition of a lease for accounting purposes has changed, it is not just the leases that you used to report in your operating lease commitments note that would need considering, some of your revenue or other supplier contracts may contain embedded leases. It is generally time-consuming exercise to gather all the information and old lease contracts into one place. For larger number of leases, we recommend using a software rather than an Excel spreadsheet as the latter often fail to handle lease modifications effectively. Significant number of judgements will also need to be made about which exemptions can be taken, what are the lease terms and discount rates to be used. For businesses with no existing borrowings, a valuation expert may need to be involved to calculate an appropriate credit spread. Unlike revenue and other changes, new lease accounting cannot be restated in your comparative figures, therefore relevant stakeholders will need to be informed.

AI - we have seen clients attempting to do their own work using ChatGPT. The output we see from AI is a good starting point but is often leading to incorrect conclusions. AI also requires a person with technical knowledge to be prompting it with relevant questions and validating the output against the guidance in the standard. In addition, ChatGPT/other AI does not have access to specialist interpretations. Remember that any data entered into unsecured AI may not be kept confidential and could become part of aggregated data sets.

Taxation - an often-overlooked area during transition, but one with significant implications. Tax considerations on transition adjustments are frequently deferred until computations are prepared, but this can create challenges for entities paying corporation tax in quarterly instalments. These businesses need clarity on the new accounting rules well before the effective date. Eligibility for various tax incentive schemes, such as EMI, EIS/SIS might be affected by increases in gross assets from lease capitalisation. Additional complexities may include capital allowances on leases and corporate interest restrictions linked to lease liability interest expenses.

While the changes to FRS 102 may seem daunting, they present an opportunity to strengthen your reporting framework. By starting early, engaging the right expertise, and using efficient tools, businesses can save time, reduce risk, and ensure a smooth transition.

Get in touch

Our specialists can assist you with the impact assessment of the proposed changes and carry out the transition exercise. If you would like to discuss this further, please don't hesitate to get in touch with me, Gavin Young, or Barry Masson.