For accounting periods beginning on or after 1 January 2026, the amended FRS 102 is now the applicable standard for the vast majority of UK entities. Following the Financial Reporting Council's second periodic review, the changes represent the most significant update to UK Generally Accepted Accounting Practice since FRS 102 was first introduced. If you have not already begun preparing your clients, the time to act is now.
This post sets out the key changes, the practical questions your clients are likely to bring to you, and the steps your firm should be taking to manage the transition confidently.
This is the headline change. Under the revised standard, lessees can no longer keep most operating leases off the balance sheet. Instead, virtually all leases must now be recognised as a right-of-use (RoU) asset and a corresponding lease liability. The approach closely mirrors IFRS 16, though with some practical simplifications designed for the UK market, including the use of an obtainable borrowing rate rather than an incremental borrowing rate.
The practical consequences for your clients are significant:
Importantly, there is no requirement to restate comparative figures. Any cumulative transition adjustment is instead recognised in opening retained earnings, which simplifies the first-year transition but means careful documentation is essential.
The amendments introduce a single, comprehensive five-step model for revenue from contracts with customers, broadly aligned with IFRS 15. In summary, entities must:
For many straightforward businesses, this will not change much in practice. However, clients with bundled goods and services, variable consideration, long-term contracts, licences, warranties, or customer loyalty schemes will need to review whether their existing revenue recognition policies remain appropriate. The model introduces more judgement and more required disclosures, particularly around performance obligations and the timing of revenue recognition.
Small entities reporting under Section 1A of FRS 102 have historically benefited from reduced disclosure requirements. The revised standard narrows that gap. Additional disclosures are now required, where relevant and material, in relation to:
This means that even your smallest limited company clients may face more work at year-end than in previous years. Disclosure checklists and accounts production templates will need to be updated accordingly.
Beyond the headline areas, the periodic review also introduced several further amendments that firms should be aware of:
Expect a wave of client queries as year-ends under the new standard begin to arrive. The most common concerns are likely to be:
"Will this change my company's profit?" Not necessarily. For most clients, total profit over the life of a lease or contract will not change, but the timing and presentation will. Lease costs shift from a single rental charge to depreciation plus interest, and revenue may be recognised at different points than before. Clients need to understand that a change in presentation is not the same as a change in underlying performance.
"Will my bank still be happy with my accounts?" This is often the real worry, and it is a fair one. Bringing leases onto the balance sheet can affect gearing ratios and other covenant tests, even though nothing has changed operationally. Clients with lease-heavy balance sheets (retailers, hauliers, care providers) should be flagged early so covenant conversations can happen before the accounts land on a lender's desk, not after.
"Do I need to do anything differently day to day?" For lease accounting, yes. Clients will need to maintain a clear lease register (start date, term, payments, any options to extend or break) so you can calculate the RoU asset and liability accurately. Many clients have never kept this information in one place, so this is worth raising well before the year-end.
"Does this apply to my small company too?" Almost certainly. Section 1A entities are still in scope for both the lease and revenue changes, and now face additional disclosure requirements as well. The idea that "small company accounts are simple" is less true than it used to be.
"When do I actually need to worry about this?" Now, if the accounting period beginning on or after 1 January 2026 has already started, or is about to. The earlier the lease register and contract review happen, the smoother the first set of accounts under the new standard will be.
It is easy to frame the FRS 102 changes as a burden. The volume of work is real, and the pressure on practices is genuine. But there is another way to read what is happening.
The new standard is forcing a deeper, more detailed conversation between accountants and their clients, about leases, about revenue, about how the business actually operates day to day. That conversation is an opportunity. It is a natural moment to review a client's lease portfolio, question whether their revenue recognition policy still fits how they trade, and demonstrate value that goes well beyond ticking a compliance box. Practices that build efficient, well-templated workflows around the new standard are not just managing the transition, they are positioning themselves to offer richer advisory conversations off the back of it.
The firms that will look back on this period as a turning point are the ones that planned early, communicated proactively, invested in the right tools, and treated the FRS 102 changes not as a threat to manage but as a platform to build on.
The first year-ends under the new standard are coming. The question is whether your practice is ready.