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ACCA factsheets on Leases and Revenue Recognition explain the changes
The Financial Reporting Council (FRC) has introduced significant amendments to FRS 102, effective for accounting periods beginning on or after 1 January 2026, with early adoption permitted. These changes, stemming from the 2024 periodic review, aim to align UK and Ireland Generally Accepted Accounting Practice (GAAP) more closely with international standards, particularly IFRS 16.
Lease accounting
Under the revised lease accounting model, lessees are now required to recognize most leases on the balance sheet. This involves recording a ‘right-of-use’ asset and a corresponding lease liability, representing the present value of future lease payments. Consequently, the traditional distinction between operating and finance leases is eliminated for lessees. Lease expenses will now be reflected as depreciation of the right-of-use asset and interest on the lease liability in the income statement.
Exemptions are provided for short-term leases (12 months or less) and leases of low-value assets, which can continue to be accounted for off-balance sheet. The FRC provides guidance on what constitutes low-value assets, typically excluding items like vehicles, heavy machinery, and property.
These amendments could impact key financial metrics, such as EBITDA and net debt, and may have implications for debt covenants and performance-based remuneration schemes, although it should be noted that micro-entities applying FRS 105 are not affected by these changes.
For a comprehensive understanding of the new lease accounting treatments, refer to the ACCA’s technical factsheet.
Technical factsheet: Lease accounting under FRS 102
Revenue recognition
A key development is the introduction of a comprehensive five-step model for revenue recognition, replacing the previous guidance in Section 23. This model requires entities to:
- Identify the contract with a customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognise revenue when (or as) the entity satisfies a performance obligation.
This approach ensures that revenue is recognized in a manner that reflects the transfer of promised goods or services to customers, aligning with the amount of consideration expected in exchange.
The revised Section 23 also introduces enhanced disclosure requirements, promoting greater transparency in revenue reporting.
Entities are encouraged to assess the impact of these changes on their financial statements and consider early adoption to facilitate a smoother transition.
For a detailed understanding of the new revenue recognition treatments, refer to the ACCA’s technical factsheet.
Technical factsheet: Revenue recognition under FRS 102 (September 2024)