FRS 102: Key Changes for 2026 Year Ends

A Simple Guide to the New Disclosure Requirements for Leases, Revenue Recognition and Related Party Transactions

Significant updates to FRS 102 will apply to accounting periods beginning on or after 1 January 2026. These changes affect all entities applying FRS 102, including small companies using Section 1A.

The four areas businesses are most likely to notice are:

1. Related Party Disclosures
2. Going Concern Disclosures
3. Lease Accounting
4. Revenue Recognition

Understanding these changes now will help businesses avoid surprises and ensure they are ready for the new reporting requirements.

1. Related Party Transactions – More Detailed Disclosures Required

The disclosure requirements for related party transactions have been significantly expanded. Small entities will now be required to provide much more comprehensive information within their financial statements.

Disclosures will include:

• The nature of the relationship between the parties.
• Details of transactions, outstanding balances and commitments.
• Terms and conditions, including settlement arrangements and security provided.
• Guarantees given or received.
• Provisions for uncollectible balances and bad debt expenses.

What Should Businesses Do?

• Ensure all related party transactions are properly documented.
• Reconcile director loan accounts regularly.
• Consider formalising informal arrangements, such as interest-free loans.
• Be aware that more detailed information will be publicly available through statutory accounts filings.
• Speak to Magee Gammon if you are unsure whether a transaction falls within the related party rules.

2. Going Concern – Positive Disclosure Required

A going concern is a business that is expected to continue trading for at least the next 12 months without the need to cease operations or enter liquidation.

Historically, small entities were generally presumed to be a going concern unless there was evidence to suggest otherwise. Under the revised FRS 102 requirements, businesses will now need to make a positive disclosure confirming their assessment.

Small entities will be required to:

• State that the financial statements have been prepared on a going concern basis.
• Confirm that management has considered all available information about the future.
• Disclose any significant judgements made when assessing the entity’s ability to continue trading.

What Should Businesses Do?

• Review future trading prospects and cash flow forecasts.
• Consider any risks that could affect ongoing operations.
• Document management’s assessment process.
• Discuss any concerns with your accountant as early as possible.

3. Lease Accounting – Most Leases Moving Onto the Balance Sheet

One of the most significant changes under the revised FRS 102 is the new approach to lease accounting.

For lessees, most leases will now be recognised on the balance sheet through:

• A right-of-use asset.
• A corresponding lease liability.

This removes the traditional distinction between operating leases and finance leases for lessees.

As a result, businesses will generally record depreciation and interest costs rather than a single rental expense within the profit and loss account.

New Disclosure Requirements

Small companies will need to provide additional information about their leasing arrangements, including:

• A general description of significant lease agreements.
• Information necessary to understand key lease terms.
• Expenses relating to short-term leases, low-value leases and variable lease payments.

What Should Businesses Do?

• Review all existing lease agreements.
• Identify leases that may qualify for exemptions.
• Assess the impact on key financial ratios and banking covenants.
• Discuss any potential implications with lenders where necessary.

4. Revenue Recognition – Introduction of a Five-Step Model

FRS 102 will introduce a new five-step model for recognising revenue from contracts with customers.

This change will require many businesses to reassess their existing revenue recognition policies, particularly those with:

• Staged or milestone-based projects.
• Bundled goods and service offerings.
• Subscription-based contracts.
• Variable pricing arrangements.
• Performance-related fees.

New Disclosure Requirements

Small entities will need to disclose information about performance obligations, including:

• When obligations are typically satisfied.
• Payment terms and any financing components.
• The nature of the goods or services provided.
• Whether the business acts as a principal or an agent.

What Should Businesses Do?

• Review customer contracts and revenue streams.
• Identify individual performance obligations.
• Assess when revenue should be recognised.
• Update accounting policies and internal procedures.
• Ensure finance teams understand the new requirements.

Preparing for the 2026 Changes

Although the new rules do not apply until accounting periods beginning on or after 1 January 2026, businesses should begin planning now.

We recommend taking the following steps:

1. Review lease agreements and gather information needed for the new disclosures.
2. Map revenue streams against the five-step revenue recognition model.
3. Identify all related parties and ensure transactions are properly recorded.
4. Update internal systems and processes to capture the additional disclosure requirements.
5. Discuss the impact early, particularly if lenders, investors or auditors are involved.

How Magee Gammon Can Help

The FRS 102 changes will affect financial reporting, disclosures and internal processes for many businesses. Early preparation can help minimise disruption and ensure compliance.

If you would like to discuss how the new requirements may affect your organisation, please contact Magee Gammon. Our team can help you understand the changes, assess the impact and prepare for a smooth transition.