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Major changes include a structured five-step revenue recognition model
The latest amendments to FRS 102 mark a significant transformation in how UK and Irish entities must recognise revenue. They are effective for periods beginning on or after 1 January 2026. Early adoption is allowed, provided all related amendments are applied together. The changes bring FRS 102 much closer to the international approach under IFRS 15 by introducing a structured five-step revenue recognition model.
The new five-step revenue recognition model
FRS 102 now requires entities to apply a detailed model for all contracts with customers:
- Identify the contract: revenue can only be recognised if there is a clear contract (written, verbal or implied) with enforceable rights and obligations
- Identify performance obligations: entities need to distinguish distinct goods or services promised in a contract, known as performance obligations
- Determine the transaction price: the total consideration expected from the customer is measured, including complex concepts like variable considerations, refunds and discounts
- Allocate the transaction price: this price is allocated to each performance obligation, reflecting the value of individual goods or services
- Recognise revenue: revenue is recognised as, or when, each performance obligation is satisfied – either over time or at a point in time, depending on the nature of the transfer of control.
Key changes from the previous FRS 102 regime
- Previously, revenue was recognised based on the transfer of significant risks and rewards of ownership. Now, revenue is recognised when control of goods or services transfers to the customer, which may change the timing for many transactions.
- The new rules provide much more detail on identifying separate performance obligations, allocating prices, and accounting for variable consideration.
- Revised guidance covers contract modifications, bundling (or de-bundling) goods and services, and specific issues such as non-refundable upfront fees, financing components, warranties, rights of return and principal versus agent arrangements.
- There are increased disclosure demands – entities must explain their revenue recognition methods, present more information about contracts, performance obligations, and significant judgements made in accounting for revenue.
The amendments to FRS 102 signal a move towards greater transparency, comparability and alignment with international standards in revenue recognition.
Preparing for these changes early is crucial to managing the technical, operational, and disclosure impacts the new standard brings.
For further guidance including some practical examples, refer to ACCA’s technical factsheet Revenue recognition under FRS 102.