FRS 102 changes: how finance teams can avoid the year-end crunch
Why finance teams should act now on FRS 102
The revised FRS 102 requirements are now effective for most entities reporting under UK Generally Accepted Accounting Practice (GAAP). For many, the first year-end under the revised requirements is only a few months away, yet some finance teams have not completed an impact assessment, reviewed revenue contracts or started to build the changes into their reporting processes. By delaying their preparations, these organisations run the risk of having to carry out a challenging last-minute implementation of the new FRS 102 requirements.
Many are underestimating the scale of the work involved. It can be tempting to assume that the revised requirements are something that can be dealt with at year end, or that templates and tools will do most of the heavy lifting. In practice, the challenge is applying judgement to real contracts, lease arrangements and accounting policy choices.
FRS 102 revenue recognition changes
Revenue is a good example of how some organisations are underestimating the challenge. A common response to FRS 102 changes is: “The new revenue model won’t affect us, so we’ll deal with it as part of our year-end close and audit process.” It might be true that there are no adjustments, but without a detailed contract review, it remains only an assumption. Leaving detailed contract reviews until year end risks adding pressure to an already demanding reporting and audit process.
Auditors will need clear evidence to support management’s assessment of significant revenue streams, including the judgements made and why no change, or only limited change, is expected. Revenue accounting policies will also need to be redrafted to explain how the new five-step model has been applied to each material revenue stream.
Some organisations are surprised by the outcomes when they apply the five-step model to their contracts. Volume rebates and discounts, both forms of variable consideration, and customer returns can all affect the timing or amount of revenue recognised. There is also an accounting policy choice to be made on the initial adoption of the revised revenue section, which should be understood and approved rather than left to a rushed decision at the end of the process.
FRS 102 lease accounting changes
Leases are another area where the practical work required to bring leases onto the balance sheet often takes longer than expected, creating additional pressure for finance teams who may need input from across the business before the year-end close and audit process begins. Finance teams first need to track down all their lease agreements, which are often held across finance, facilities, legal and operational teams. They then need to assess lease terms, including break and extension clauses, decide which practical expedients apply and determine appropriate discount rates before they can undertake the lease calculations.
FRS 102 tax considerations
Another key consideration is the tax implications of any adjustments. Transitional adjustments arising from the revised revenue and lease requirements could impact taxable profits and cash tax payments. Revenue adjustments will be taxed or deducted in the first period the revised standard applies, while lease adjustments are subject to specific spreading rules. For companies paying corporation tax by quarterly instalments, understanding the impact early can help avoid unexpected cash flow pressure, interest charges or last-minute surprises in the tax return.
What finance teams should do before year end
Based on our experience of IFRS 15 and IFRS 16 adoption, the advice is simple – start now. Do not underestimate the work required and do not leave the FRS 102 amendments until calendar year 2027. Leaving it too late increases the risk of rushed judgements, late board decisions, audit delays, additional fees and further pressure on already stretched finance teams. For businesses with covenant reporting deadlines, acting now also reduces the risk of breaches, waiver fees and pressure on funding arrangements.
If the changes to UK GAAP are still on your to-do list, Danielle Stewart OBE, Lou Ward or your usual RSM contact can help you assess the impact, plan your next steps and reduce pressure ahead of your FY26 reporting cycle.