Changes to FRS 102 take effect on 1 January 2026 and are expected to impact companies across the media sector. The two main amendments revise the revenue (S23) and leasing (S20) standards, potentially altering how and when revenue is recognised and bringing almost all leases onto the balance sheet. In this article, we’ll take a closer look at the changes to revenue recognition and what the new five step model means for media companies. For more information about the changes to leases, please visit our Bridging the GAAP hub.

Introducing the concept of performance obligations

One of the most consequential changes to FRS 102 is the introduction of the concept of performance obligations to the revenue recognition methodology.

Essentially this concept requires companies to assess all goods and services being offered within a contract and to understand if the customer can benefit from them on their own or with resources readily available to them. If the customer can benefit from the services individually within the context of the contract, then they must be recognised separately.

Media companies frequently use bundled service arrangements, which is why they will be significantly impacted. These bundled arrangements often include diverse revenue streams that may be assessed as separate performance obligations. Some examples of common bundled arrangements include:

• Advertising arrangements: creation of content, production, media placement and social media posting
• TV production: production of a show, commissioning of an agent and licensing arrangements
• Publishing: subscription revenues providing access to online platforms and articles throughout the year.

Dealing with uncertain revenue when calculating the transaction price

As part of the new changes, companies will need to accurately measure any variable consideration they receive as part of the transaction price, especially when that consideration involves significant estimation.

Some common estimations include:

• 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 advertising: revenue based on clicks, views or conversions.
• Rebates and incentives: offering rebates or incentives that affect the transaction price, where levels of rebates or incentives must be estimated.
• Royalty payments: revenue based on the usage or sales of the licensed content should be deferred until the sale or usage occurs.
• Sales and returns: selling books, magazines or other media to retailers with the agreement that unsold items can be returned for a refund or credit introduces complexity in revenue recognition because publishers must estimate the value of sales that will be returned.
• Revenue credits: there are many reasons credits could be issued, such as volume discounts, promotions, goodwill compensations or revenue sharing models, but all situations will involve an estimation of the value of credit being issued and how this should be recognised.

While most of these estimations aren’t new, it is the way that the uncertainty is allocated across the performance obligations and the timing of the uncertain revenue’s recognition, which could cause complexity for finance teams.

Understanding your contracts

It’s important to note the new revenue model is contract-based with the most appropriate revenue treatment being based on contractual arrangements between the parties. So, clarity in these contracts is crucial as even minor differences in contract wording could be the difference between recognising revenue over time or at a point in time.

As media contracts are often bespoke and modified over time, companies will need to reassess any contract changes against the revenue recognition requirements.

How can companies prepare for the new FRS 102 amendments?

Ahead of the FRS 102 changes, businesses should take steps to understand whether they will be impacted and what they can do to prepare. Businesses should:

1. Revisit contracts to understand how these vary between different customers and services, together with how modifications or enhancements to contracts are documented. Consider if there is an option to standardise and simplify terms going forward.
2. Determine whether the services provided meet the definition of separate performance obligations and should be recognised separately.
3. Improve processes to develop robust methods for estimating variable consideration.
4. Consider enhancing systems to accurately report different performance obligations and variability in revenue recognition in compliance with the amended standard.
5. Train sales and finance teams so that they understand the changes to the revenue standard and how this could impact their contractual negotiations, and recognition of revenue.

If you think your company might be impacted by these changes and would like some help or advice, please get in touch with David Blacher, Richard Heaps or Amelia MacPherson.