In March this year, an updated version of the Financial Reporting Standard 102 (FRS 102) was released, which made a significant development in UK accounting standards. The new model aims to modernise reporting practices and align them more closely with international frameworks, while addressing practical challenges faced by businesses. Most of the amendments will be effective for accounting periods on or after 1 January 2026, with an allowance for early adoption.
What are of the key changes coming?
Leases
The new section 20 on leases includes the removal of the distinction between operating and financial leases with confirmation that all leases now need to be recognised on the balance sheet, with exemptions for short-term leases and low value assets.
Revenue
Section 23, Revenue, has been retitled to Revenue from Contracts with Customers, and introduces a five-step revenue recognition model that is based on IFRS 15: Revenue from Contracts with Customers. This model aims to eliminate any weaknesses in the previous model and offer a framework for those users of financial statements.
There are some extra requirements that apply specifically to charities:
Donated goods
The revised FRS102 also clarifies circumstances whereby it may not be practical to estimate the value of resources e.g. in the case of reselling second-hand goods which are likely high volume and low value. In this case, the income generated will be recognised in the financial period when the goods are sold or distributed, allowing for donated resources to be acknowledged upon sale or distribution, without having to include them as stock at year end.
Legacies
A further change refers to donations in the form of legacies. It states that these types of donations will be recognised when it is credible that the legacy will be received, and its value can be measured accurately. This recognition may be influenced by events such as valuations and disputes.
How can businesses prepare for the changes?
To get ready for the FRS 102 changes, businesses should start by assessing the impact on their financial statements, particularly around leases and revenue recognition. Update accounting systems to handle the new lease model and five-step revenue process and provide training for finance teams to ensure smooth implementation. Communicate early with stakeholders about potential effects on KPIs and review any agreements that might be affected. Finally you should plan your transition strategy.
How can PM+M help?
The PM+M team can help you navigate the updated changes to the Financial Reporting Standard and ensure you’re fully prepared before they come into effect. These changes may influence how your financial statements are presented, so understanding them early is key to a smooth transition.
For further information or to discuss your individual circumstances, please contact Ceri Dixon using the button below.
