Preparing for the new FRS 102 requirements
The revised FRS 102 accounting standard comes into effect for accounting periods beginning on or after 1 January 2026.
While many businesses are aware of the headline changes to lease accounting and revenue recognition, the wider impact on financial reporting, systems and processes can be easy to underestimate.
Depending on your circumstances, the changes could affect reported profitability, balance sheets, banking covenants, management information and financial statement disclosures. The revised FRS 102 amendments also introduce different transition requirements depending on the accounting area affected. This may require presenting comparative prior-year figures. For instance, under the new lease accounting model, comparatives are not required to be restated; however, entities adopting the revised revenue recognition requirements can choose a transition method.
Businesses should therefore assess the transition options available and identify the information that will need to be captured from the date of initial application.
For some organisations, preparing for the transition may require changes to systems, processes and reporting.
The key question: is your business ready?
Complete our FRS 102 impact assessment questionnaire to identify the areas of the revised standard most likely to affect your business.
Changes to FRS 102
The most significant amendments relate to lease accounting and revenue recognition.
Lessee accounting
Most leases will now be recognised on the balance sheet as right-of-use assets with corresponding lease liabilities.
For many businesses, this could affect:
- EBITDA
- net debt and gearing
- interest cover
- banking covenants
- cashflow reporting.
If your business leases property, vehicles, equipment or other assets, it is worth assessing the impact as early as possible.
Revenue recognition
The revised standard introduces a new revenue recognition model based on a five-step approach, consistent with the principles of IFRS 15.
Businesses will need to review customer contracts and consider whether revenue should be recognised differently from the current approach.
You may be affected if you have:
- multiple revenue streams | subscription models | bundled products and services | variable pricing | milestone billing arrangements | contract modifications.
In some cases, this could change the timing of revenue recognition and increase disclosure requirements.
Other areas of change
While leases and revenue are likely to have the greatest impact, the amendments also introduce changes in other areas, including:
- fair value measurement
- business combinations
- financial instruments
- uncertain tax positions
- disclosures for smaller entities.
Each business will be affected differently, so understanding your exposure early matters.
Identify where further analysis is needed
How ready is your business for the changes ahead?
- Do you know which contracts and leases are affected?
- Could the changes impact EBITDA, debt ratios or banking covenants?
- Can your current systems capture the information required?
- Will you need additional disclosures or reporting processes?
- Have you considered the impact on boards, lenders and other stakeholders?
- Have you agreed on a transition plan, including clear responsibilities and timescales?
Act now to prepare for the changes
The deadline is not simply your 2026 year-end
Businesses will need to start acting now to understand the impact and capture the relevant information well in advance. Delaying this assessment could make the transition more complex, time-consuming and costly than expected.
Although the revised requirements apply from 1 January 2026, implementing the changes can take time.
Starting early can help you identify potential challenges, prioritise actions and avoid unexpected issues during implementation.
How Crowe can help
Whether you need an initial impact assessment or support throughout implementation, our specialists can help you understand the potential impact, prioritise actions and prepare for a smooth transition.
To discuss the impact of the revised FRS 102 requirements on your business, please contact your usual Crowe contact or complete our form below.
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