You might have heard a lot about the changes to FRS 102 – or nothing at all. Either way, we’re not here to tell you what the standard says. We are here to answer the questions that aren’t in the detail: Why should I care? and How hard can it be?
Why should I care?
If you report under FRS 102, these changes are coming – whether you like it or not. As a director signing off annual reports, you’re confirming that the accounts comply with applicable standards. Ignoring the updates isn’t an option; it could mean failing to meet your fiduciary duties.
But the implications go far beyond compliance. Your management reporting will change, shareholder or lender reports could look different, and month-end processes might take longer. In short, these changes will affect not just your financial statements, but how your business runs. If you haven’t started planning, now’s the time – you do need to care.
How hard can it be?
The honest answer: it depends. But let’s look at what we already know.
The latest periodic review of FRS 102 introduces some of the most significant updates in years, reshaping how businesses report revenue and leases. At its core, the review brings FRS 102 closer in line with international accounting standards – particularly IFRS 15 (Revenue) and IFRS 16 (Leases).
Revenue recognition: The old guidance is being replaced by a structured five-step model. Businesses will need to think carefully about how they identify contracts, define the obligations contained in the contracts and how and when they allocate revenue on satisfaction of those obligations. The timing of revenue recognition could shift, particularly for long-term contracts/projects, sale of services or complex arrangements.
Leases: Gone are the days of keeping operating leases off the balance sheet. Most leases will now require recognition of a right-of-use (ROU) asset and a corresponding liability. Even with exemptions available for short-term and/or low-value leases arrangements, the impact on the balance sheet, EBITDA, and covenant calculations could be significant.
Haven’t we seen this before?
Yes – and there’s a lot we can learn from it.
When IFRS 15 and IFRS 16 came into force in 2018 and 2019, many organisations underestimated the effort involved.
- A global PwC survey found 55% of companies faced unexpected challenges during IFRS 16 implementation, and 72% said their systems couldn’t fully cope with the new requirements.
- A global KPMG survey found that among firms where leasing implementation costs increased, 25% cited a greater need for external advisors due to time and resource constraints.
- The IFRS Foundation noted in 2024 that most respondents found implementing IFRS 15 “challenging and costly.”
The lesson? Don’t leave it too late. These changes impact more than accounting – they affect systems, processes, and people. Early preparation will save significant time and cost later. The (mandatory) effective date is well advertised by this stage, being accounting periods commencing on or after 1 January 2026 (i.e. primarily impacting 31 December 2026 year-ends first), however, considerations for early adoption, available exemptions and options on transition, including whether to apply a retrospective approach, are vital to a well-informed plan.
OK, we get it – so where do I start?
Begin by understanding how these changes affect your business. The impact will vary, and some areas can be highly subjective, requiring judgement. That’s where we can help.
UNW’s team includes experts who have supported clients through the IFRS transitions back in 2018–2019 and have experience with current IFRS clients who are effectively already adopting the accounting approaches set out by the changes to be reflected in FRS 102. Whether you need impact assessments, guidance papers, or practical implementation support, we can tailor our approach to your needs.
To further support businesses, we’ll soon be launching a series of articles on the upcoming changes to FRS 102. They’ll help you understand where to start and highlight the key areas you need to be aware of – more to come soon.
If you’d like to discuss how the new FRS 102 requirements apply to your organisation, or want support preparing for the transition, please get in touch with your usual UNW contact – who will refer you to one of our Audit and Accounting specialists – or email enquiries@unw.co.uk.
