Why waiting until year-end to prepare for FRS 102 could be costly

With the revised FRS 102 requirements now applying to accounting periods beginning on or after 1 January 2026, many businesses are approaching their first year-end under the new requirements. However, a common theme is emerging from organisations already beginning their transition projects: implementation often takes longer than expected.

Whether organisations are assessing the new revenue recognition requirements or preparing for lease accounting changes, the biggest challenge is rarely the accounting entries themselves. More often, it is the work required beforehand: gathering documentation, reviewing contracts and making assessments on the judgemental aspects.

For businesses planning to leave implementation until year-end, that delay could prove expensive.

Why preparation shouldn't wait until the reporting deadline

For businesses with a 31 December year-end, the first reporting period under the revised FRS 102 requirements is already well underway. For organisations with later year-ends, there may be more time, but the experience of implementation projects shows that leaving the work until the accounts preparation process can create unnecessary pressure.

Transition can expose documentation and process gaps

One of the practical challenges of transition is establishing whether the information needed to apply the new requirements is readily available.

For revenue recognition, agreements may have evolved over time. Historic contract templates, amendments, side arrangements and variations can all make it more difficult to establish exactly what has been promised to a customer and how those obligations should be accounted for.

For leases, businesses may need to identify agreements across different locations, functions or subsidiaries and collate information that was not previously required centrally for financial reporting.

Transition work can therefore uncover:

• inconsistent or incomplete contract documentation;
• historic revenue recognition practices requiring further review;
• missing or decentralised lease information; and
• weaknesses in processes for maintaining accounting records.

Identifying those issues early gives businesses an opportunity to resolve them in a controlled way rather than discovering them when accounts are already being prepared.

Revenue recognition may require a deeper review

Many businesses assume that because they have long-established revenue recognition policies, the new requirements will have limited impact. In reality, the enhanced revenue guidance is prompting organisations to revisit how revenue has historically been recognised.

A key area is the identification of distinct performance obligations. Contracts that have previously been treated as a single revenue stream may contain multiple goods or services that require separate accounting treatment.

For example, a software provider may offer:

• Software subscriptions
• Implementation services
• Training
• Ongoing support

Under the revised requirements, each element may need to be assessed separately, affecting both the timing and pattern of revenue recognition. Without sufficient time to review existing contracts and revenue streams, businesses risk facing difficult accounting assessments close to year-end.

Lease accounting requires data as well as judgement

The new lease accounting requirements are prompting businesses to consider a number of practical questions. For example:

• Which arrangements contain a lease?
• Which leases qualify for exemptions?
• Which leases have break clauses or extension options which need assessing?
• What discount rate should be applied?

Determining an Obtainable Borrowing Rate (OBR) can be particularly challenging, especially for businesses with little or no external borrowing. While the guidance provides a practical and simplified approach compared with IFRS 16, it still requires careful judgement and appropriate documentation.

Leaving these considerations until year-end may reduce the time available to gather supporting evidence and evaluate potential accounting impacts.

Don’t overlook the tax and cashflow implications

Corporation Tax (CT) calculations generally start with the profit reported in a company’s accounts, before applying specific tax adjustments. As a result, changes to when revenue and expenses are recognised could affect the timing of taxable profits and tax payments.

For example, if the new revenue model results in income being recognised earlier, a business could potentially face an earlier CT liability even where the total tax payable over the life of the contract does not change. Larger businesses may also need to consider the impact on Quarterly Instalment Payments.

Lease accounting changes could also alter the timing of tax deductions as the accounting expense will comprise the depreciation of a right-of-use asset and interest on the associated lease liability for many leases.

Modelling the tax impact alongside the accounting changes can help identify potential cash flow implications, transitional adjustments and any further compliance requirements before the first reporting deadline.

Start with a practical plan

The most successful transition projects are typically the ones that begin with information gathering.

For many businesses, a sensible starting point is:

1. Map your key revenue streams and contract types into categories or ‘buckets’
2. Create a complete listing of leases
3. Identify areas requiring judgement
4. Review existing accounting policies against the revised requirements
5. Prioritise high-value, high-risk or complex arrangements
6. Model the financial statement, tax and covenant impact
7. Seek specialist support where gaps or complex issues emerge

Taking these steps now can help avoid a rushed implementation while providing greater confidence in the resulting financial reporting.

We're here to help

Preparing for FRS 102 doesn't have to be a last-minute exercise.

Azets' Audit, Technical Accounting and Tax specialists can help organisations assess the impact of the new requirements, review revenue streams and lease arrangements, identify potential issues and develop a practical transition plan. Whether you are just beginning to consider the changes or are already working through implementation challenges, our team can help you prepare with confidence and avoid unnecessary pressure at year-end.