FRS 102 reforms: Practical guidance for businesses

The revisions to FRS 102 – effective for accounting periods beginning on 1 January 2026 – introduce complex calculations, judgement-driven assessments, and significant system changes that many businesses are not yet ready for.

This Insight distils the reforms into a practical checklist to help you prepare.

1. Understand your lease exposure

Begin by mapping out all leases across the business, including:

• Offices
• Warehouses
• Vehicles
• Plant and machinery
• IT equipment
• Third party hardware

For each lease, determine:

• Lease length including break clauses and extension options
• Annual costs including minimum increases
• Whether the company or employee is the leaseholder (important for electric vehicles on salary sacrifice)
• Which leases fall under exemptions

This information forms the basis for Net Present Value (NPV) calculations and any transitional adjustments required under the new leasing rules. An appropriate discount rate will also need to be determined.

2. Review revenue contracts early

If your business generates revenue from bundled, staged or multi‑element arrangements, you will need to analyse each contract for separate performance obligations. This can be subjective and requires careful consideration.
Contracts that typically require deeper review include:

• Software licences
• Support and maintenance contracts
• Hardware + service packages
• Construction or manufacturing contracts

Understanding the substance of these contracts early will avoid year‑end surprises and ensure revenue is recognised accurately.

3. Prepare your finance systems

System and reporting changes will be essential. Consider updates to:

• Chart of accounts
• Monthly reporting templates
• Budgeting models
• Management incentive schemes (e. g., EBITDA-linked bonuses)
• Forecasting tools

You may need new nominal codes for right‑of‑use assets, lease liabilities, and other transitional balances introduced by the reforms.

4. Review banking covenants and stakeholder agreements

The new accounting treatments will affect several key financial metrics, including:

• EBITDA
• Balance sheet size
• Leverage ratios
• Interest cover
• Gearing metrics

Proactive conversations with lenders, investors and credit insurers will help safeguard agreements before the new numbers begin to bite.

5. Train your team

Your finance teams need awareness of:

• Lease calculation methodologies
• The revenue recognition five-step model
• Disclosure changes for small entities
• Tax considerations

Investing time in training now reduces the risk of errors – and helps your team embed the new rules confidently.

6. Seek support where needed

For many businesses, aspects of the transition will be too specialised or resource‑intensive to handle alone. External specialists can assist with:

• Impact assessments
• NPV calculations
• Revenue contract reviews
• Tax treatment analysis
• Financial modelling
• Transition adjustments
• Technical training for teams

We’re here to help

If you have questions about how the FRS 102 reforms will affect your business – and the steps you should take now – our specialists are here to support you. Get in touch using the form below.