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FRS 102 Changes: What UK Businesses Need to Know for 2026

From January 2026, important updates are being introduced to FRS 102, the main accounting standard used by thousands of UK businesses. These changes aim to make financial reporting clearer, more consistent and more reflective of how modern businesses operate.

While the updates may sound technical, their impact will be very real, affecting how revenue is recognised, how leases appear on the balance sheet, and how financial information is presented.

This guide breaks down the changes in simple terms and explains what business owners, managers and finance teams should start thinking about now.

Why is FRS 102 Changing?

Every few years, the Financial Reporting Council reviews FRS 102 to improve its relevance and keep it aligned with international standards. The upcoming update focuses on:

  • Making financial statements easier to understand
  • Bringing UK standards closer to global accounting rules
  • Improving transparency for lenders, investors and business owners

The result: clearer reporting, but with some new requirements you’ll need to plan for.

Key Changes in FRS 102

1. A New Approach to Revenue Recognition

Revenue, when you record income, is one of the biggest changes coming.

The updated standard introduces a clearer, more structured approach to recognising revenue. Instead of focusing purely on when risks and rewards pass, the new rules look at when the customer actually receives value.

What this means in practice:

  • Service-based businesses may recognise income over a different timeline
  • Companies offering bundled services/products may need to separate the elements
  • Contracts will need reviewing to understand when revenue should be recorded

For some organisations, this may shift revenue earlier or later than it is now.

2. Most Leases Will Now Go on the Balance Sheet

Historically, many operating leases, such as office space, equipment or vehicles, only appeared as expenses in the profit and loss account.

Under the new rules, most leases will now appear on the balance sheet as:

  • A right-of-use asset
  • A lease liability

What this means for businesses:

  • Your balance sheet will look different
  • EBITDA may increase because lease costs won’t all sit in operating expenses
  • You may need to review covenant calculations or lender reporting

Short-term and low-value leases may be exempt, but many businesses will need to identify and review all active leases.

3. Updates to Financial Instruments and Bad Debt Provisioning

The updated rules introduce a more forward-looking approach when assessing the risk of customers not paying.

What this means:

  • You may need to recognise expected credit losses earlier
  • Some organisations could see higher bad debt provisions
  • Cash-flow forecasting and credit control will become more important

This change aims to give a more realistic picture of future financial risk.

4. More Detailed Disclosures

The updated standard aims to improve transparency by requiring clearer explanations in the notes to the accounts.

Businesses will need to provide more information about:

  • How revenue is recognised
  • Lease commitments
  • Key judgements and estimates
  • Financial risks and how they are managed

While this does add extra work, it also gives stakeholders, including lenders, a clearer understanding of business performance.

How Should Businesses Prepare?

Whilst the revisions will apply to financial periods beginning on or after 1 January 2026, early preparation will make the transition smoother.

Start with these practical steps:

  • Review how and when your business earns income – Understanding how you deliver value to customers will help determine when revenue should be recognised.
  • Gather information on all active leases – This will be essential for calculating the new balance sheet figures.
  • Assess the financial impact early – Modelling the changes will support budgeting, cashflow planning and lender conversations.
  • Update systems and processes if needed – Some businesses may require small adjustments to their accounting processes or software.
  • Make sure your finance team is aware of the changes – Training and early conversations will prevent any year-end surprises.

How RMT Can Support You

The 2026 changes to FRS 102 are some of the most significant in recent years, but with the right guidance, the transition doesn’t need to be complex.

If you’d like support get in touch, our experts are here to help.