Revised FRS 102 vs the pre-2026 FRS 102 and older UK GAAP explained

FRS 102 is the main UK GAAP standard for most UK and Republic of Ireland companies not using full IFRS. Most amendments are mandatory for periods beginning on or after 1 January 2026, with early adoption only if all amendments are adopted together.

This is the most significant update to FRS 102 since it was introduced. It brings lease accounting and revenue recognition much closer to IFRS, so almost all businesses will feel some impact. This article outlines the main updates, their impact, and how to prepare.

Summary

Two major changes apply from 2026: 

• Lessees bring most leases on the balance sheet using right of use assets and lease liabilities. 
• Revenue follows a five step, control based model.

These changes can affect reported debt, EBITDA, profit timing, deferred tax, dividends, and banking covenants. Early planning makes the transition smoother and reduces surprises.

What is UK GAAP and what is FRS 102?

UK GAAP is the accounting framework used in the UK and Republic of Ireland. FRS 102 is its main standard for companies that do not report under full IFRS. It is based on IFRS for SMEs, adapted for local law and practice, and aims to produce financial statements that give a true and fair view of a company’s financial position, performance, and cash flows.

Read more about FRS 102 lease changes 2026 compared with IFRS 16.

Key differences introduced by the revised FRS 102

Lease accounting for lessees

Under older UK GAAP and the pre-2026 version of FRS 102, lessees classify leases as either finance leases or operating leases. Operating leases, such as property rentals, are usually kept off the balance sheet and expensed over the lease term. Lessees will now recognise most leases on the balance sheet. 

You will record: 

• A right of use asset, representing your right to use the leased item. 
• A lease liability, representing your obligation to make lease payments. 

This means lessees no longer separate leases into operating and finance leases, and the result is broadly similar to IFRS 16. FRS 102 also allows some practical exemptions, mainly for: 

• Short term leases, typically 12 months or less.
• Leases of low value assets.

Lessor accounting changes little, so the main impact is on lessees. Assets and liabilities increase, lease costs shift to depreciation and interest, EBITDA often rises, and leverage ratios may increase.

Revenue recognition using a five step model

The revised Section 23 replaces the pre-2026 revenue model with a framework aligned to IFRS 15. Instead of focusing on when risks and rewards pass, revenue is recognised when control of goods or services transfers to the customer. 

The five steps are: 

1. Identify the contract with the customer. 
2. Identify the performance obligations in the contract. 
3. Determine the transaction price. 
4. Allocate the price to the performance obligations. 
5. Recognise revenue as each obligation is satisfied. 

For simple one off sales, the accounting may stay much the same. The biggest changes tend to affect long term contracts, bundled deals, licences, variable or discounted pricing, and incentives, where revenue timing and amounts may shift.

FRS 102: Differences that are not new in 2026 but still relevant

Some key differences between FRS 102 and older UK GAAP still apply, for example:

• Investment property is generally measured at fair value with changes recognised in profit or loss under FRS 102.
• If you cannot reliably estimate the useful life of goodwill or some intangibles, FRS 102 assumes a 10 year life unless you can show a better estimate.

Benefits of the new FRS 102

• Better comparability through closer IFRS alignment.
• Clearer balance sheets as leases show real obligations.
• More consistent revenue for complex contracts.
• Easier pathway to full IFRS. Businesses that grow or list later will find the concepts familiar.

Challenges to prepare for

• Covenants may change as lease liabilities raise debt.
• More data and systems may be needed for leases and contracts.
• Greater judgement on discount rates, terms, and pricing.
• Profit timing changes may affect tax and dividends.

Practical next steps

1. Build a full list of leases and key customer contracts.
2. Model the balance sheet and profit impact well before adoption.
3. Discuss covenant changes with lenders early, not after year end.
4. Check whether finance systems can capture lease and revenue data.
5. Train teams and update policies so everyone applies the new rules consistently.

Revised FRS 102: Key takeaway

The revised FRS 102 modernises UK GAAP reporting. Most lessee leases move onto the balance sheet, and revenue follows a five step control based model. Plan early to avoid surprises and adapt smoothly.