The UK and Ireland’s most widely used financial reporting framework is getting a meaningful refresh. Following its Periodic Review 2024, the FRC issued amendments to FRS 102 that are effective for accounting periods beginning on or after 1 January 2026. The amendments focus on alignment with the International Financial Reporting Standards (IFRS), with significant changes to Revenue Recognition and Leases. The amendments also introduce alignment to IFRS across other topics such as fair value measurement, business combinations, financial instruments, etc.
Below is a practical overview of what’s changing, what it could mean, and how Kroll can help you prepare.
What’s Changing?
Revenue Recognition is Being Modernised
The revised revenue requirements move toward a more structured model aligned to IFRS 15 Revenue from Contracts with Customers (IFRS 15), shifting the focus from ‘risks and rewards’ to when (or as) control transfers. This may affect when revenue is recognised, particularly for service and longer-term arrangements.
Companies most likely to feel the impact include those with long-term contracts, multi-element arrangements, or variable consideration structures.
Leases Moving onto the Balance Sheet (for Lessees)
One of the most significant practical changes is that most leases held by lessees will be recognised on balance sheet through a right-of-use asset and a corresponding lease liability, bringing FRS 102 closer to IFRS 16 Leases (IFRS 16). Lessors are significantly less affected.
Companies with significant property portfolios, vehicle fleets, equipment leases, or embedded lease arrangements are likely to see the greatest balance sheet impact.
What Are the Likely Impacts?
- KPIs such as EBITDA and operating profit may increase for lease-heavy companies as operating lease expenses are replaced by depreciation and interest.
- Balance sheets will expand due to the recognition of lease assets and liabilities, potentially affecting gearing metrics.
- Revenue timing could shift depending on contract structures and performance obligations.
- Potential impacts on covenant calculations and impairment headroom.
- Implications for refinancing, valuations, and M&A activity as earnings and debt-like items may be reassessed.
- Changes may be required to existing IT systems, data and processes such as changes to chart of accounts, ledgers, etc.
- Enhanced documentation and governance processes may be required to support new judgments and disclosures.
How Can Companies Prepare?
- Identify higher-risk or complex contracts early.
- Build a complete lease inventory and assess data gaps.
- Conduct an initial impact assessment across revenue streams and lease portfolios.
- Stress-test KPIs, covenants, and stakeholder reporting.
- Align early with boards, lenders, and auditors on expected impacts.
How Kroll Can Support
Kroll helps finance leaders manage accounting change in a controlled and commercially focused manner. We offer tailored support to cater to your specific requirements which includes:
- Performing a detailed impact assessment capturing areas that require your assessment.
- Quantifying financial statements and KPI impacts at transition date and going forward.
- Supporting policy development and implementation planning.
- Assessing covenant and transaction implications.
- Drafting detailed notes and disclosures to meet the new requirements.
- Providing valuation and transaction advisory expertise where required.
If your first reporting date under the amended standard is 31 December 2026, the window to prepare is now. Early planning such as assessing revenue streams & lease portfolio, stress-testing KPIs, covenants and alignment with key internal and external stakeholders will help avoid a shortened year-end implementation process.
