What’s changing in FRS 102 and why it matters for gaming companies

From January 2026, the changes to FRS 102, which align UK GAAP more to International Financial Reporting Standards, mean that many gaming and interactive entertainment companies will need to approach the recording and recognition of their revenue streams in a fundamentally different way, which could cause fluctuation in profitability and forward-looking revenue models. This development is likely to place additional demands on finance teams and may mean existing systems need to be updated or overhauled to handle the new reporting requirements.

The changes to the revenue accounting section bring in a new five-step model for revenue recognition that introduce a new concept of “performance obligations”. This concept requires companies to assess all goods and services promised within a contract to understand if the customer can benefit from them on their own or with resources readily available to them. If they can, then those goods and services are deemed to be a “distinct performance obligation” and revenue must be recognised separately for each distinct performance obligation identified. This will cause complexities for companies who have contracts to provide multiple goods or services to their customers.

A thorough assessment of the new revenue model's impact is needed to prepare for changes effective 1 January 2026.

From our experience, the updated revenue recognition model could significantly affect gaming and interactive entertainment companies, including:

• Key KPIs will be impacted by changes to revenue: a timely review of revenue contracts allows finance teams to plan for the impact and prepare for conversations with investors, lenders and other stakeholders.
• ERP systems may need to be changed: growing companies commonly record revenue contracts in spreadsheets alongside a simple but effective accounting package. Updates to the revenue model may be the catalyst to bring forward investment in a more sophisticated ERP system.
• International alignment may be beneficial: many gaming and interactive entertainment companies collaborate internationally, creating and selling licenses for game intellectual property. Aligning with international GAAP may help simplify discussions related to revenue recognition, as revenue reporting would then follow comparable frameworks.
• Comparability of financial results will be impacted: businesses may choose to apply revenue changes retrospectively; management should assess whether restating comparatives better reflects performance.

What are the key differences for gaming and interactive entertainment companies?

The new five-step model may have significant implications for gaming and interactive entertainment companies in the following areas:

Timing of recognition of revenue from licences granted

There is specific guidance around how to recognise revenue from licences of intellectual property, where the licence has been identified as a distinct performance obligation (see above).

The guidance means that the timing of recognition of the revenue for the licence of the game IP will depend on whether the licence granted is a “right to use” or “right to access” licence:

It is important for management teams to identify the type of licences being granted in each sales contract, as this affects when licence revenue is recognised.

Principal vs agent considerations

This is an interesting topic for the gaming and interactive entertainment industry and has caused some debate for IFRS reporters. This is because the industry typically has contracts where there are three or more parties (e.g. separate game developers, publishers and platforms) who are all involved with selling the game to an end user. In these contracts with multiple parties, careful consideration is needed as to whether revenue should be recognised gross (principal recognition) or net (agent recognition).

Recognition of variable revenue

Game IP licences are typically  sold for an initial fixed fee plus variable performance-based fees or incentives. Companies will need to consider how they estimate and recognise variable revenue under the new guidance. Examples of common elements of variable consideration are:

• Minimum guarantees in licensing arrangements: companies receive upfront payments that guarantee a minimum level of revenue or royalty payments based on the sales of the licensed content.
• Performance-based fees or Royalty payments: revenue based on performance of the game following publication, which may need to be deferred until the sale or usage occurs.
• Amounts payable to the customer for development: the publisher may offer the developing company money to support their development of the game, which may be dependent upon meeting specific development milestones.
• Rebates and incentives: offering rebates or incentives that affect the transaction price, where levels of rebates or incentives must be estimated.

While most of these estimations aren’t new, it is the allocation of the variable revenue to “performance obligations” that may cause complexity under the new revenue accounting guidance.

Identifying performance obligations in contracts with multiple goods and services

Alongside licences to the game IP, contracts may require additional goods and services from the company. Examples of goods and services promised in contracts may include:

• Game development: development of game content and licensing the IP.
• Post publication support: developers are often required to fix any bugs identified, and some may be required to provide updates to content, dependent on the terms of the contract agreed.
• Game marketing: creation of content to support the publisher with advertising the game.
• Game publishing: some companies may also publish their own game content.
• Game hosting: some companies may be responsible for the online hosting of their games.
• In-game purchases: some companies also include in-game currency purchases.

Gaming and interactive entertainment companies will need to assess whether the goods or services offered meet the definition of “distinct performance obligations”, on a contract-by-contract basis.

Danielle Stewart OBE, Head of Financial Reporting at RSM UK commented on the implications for the gaming and interactive entertainment industry: “The new Section 23 is called ‘Revenue from contacts with customers’. This title is key – the analysis of what revenue falls into what period will absolutely depend on details in your sales contracts. So now, like never before, it has become really important to seek advice on your contract terms. If you would like help with this, or any of the concepts explained above, please do not hesitate to get in touch with me or Hannah Cole who specialise in this area.”

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