Depending on when your accounting period starts, the changes to FRS 102 will affect you at some point this year.
For those who are already affected, it is worth considering whether you have done all you need to in order to stay compliant.
If the change is coming up for you, then now is the time to consider what you should be doing in order to be ready for the start of your accounting period.
Either way, we are examining what has changed with FRS 102 and how it will impact businesses.
What has changed with FRS 102?
Revenue recognition and lease accounting are set to be the most impacted by the changes to FRS 102.
Rather than recognising revenue at the point when risks and rewards transfer, it will now be recognised using a five-step model that focuses on when control of goods or services passes to the customer.
Customer contracts, particularly those involving bundled services, variable consideration, warranties or contract modifications, will all need to be reassessed.
Likewise, lease accounting is also being targeted by the reforms.
With the exception of some short-term leases and leases of low-value assets, most leases will need to be recognised on your balance sheet through a right-of-use asset and a corresponding lease liability.
Rather than recognising a single lease expense in your profit and loss account, you will need to record depreciation of the asset and interest on the lease liability.
What should you do to prepare for the changes?
As the changes to FRS 102 take effect for accounting periods commencing on or after 1 January 2026, there should be no delay in getting ready if you have not already done so.
Given the steady rolling out of the reforms over the year, you may already have seen some businesses you work with adapt to the changes.
They might have started requesting information in new formats or presenting it differently.
Taking inspiration from others who have already been affected could be beneficial, as FRS 102 reforms will require a thorough review of a lot of processes in order to stay compliant.
A good place to start is by assessing your opening balances and ensuring that they are calculated correctly.
You will also need to recognise your lease assets and liabilities and make the necessary adjustments in retained earnings.
Customer contracts and lease agreements should be thoroughly checked to ensure they are being accounted for correctly.
On the whole, new obligations generally mean that it is a good time to review systems and processes to determine whether they are still appropriate.
You may need to implement more robust systems in order to keep up with the ongoing assessment of leases, discount rates and contract changes.
Metrics such as EBITDA, profit and net debt may also be impacted, so these will need a careful review otherwise their effectiveness may dwindle.
Bank covenants, incentive arrangements or earn-out agreements will also be part of your wider review as you will be held accountable for compliance.
Our team is here to help you understand the full scope of the FRS 102 changes.
Mass reforms can pose a challenge and the added stress of compliance is something that most business owners could do without.
That is why we can work with you to review your current systems to highlight the areas that will need changing and guide you towards compliance.
Speak to our team to become more confident in managing the new FRS 102 obligations.
