Revenue recognition model in FRS 102 and FRS 105

FRS 102, the principal UK accounting standard, which applies to general purpose financial statements, and FRS 105, the standard applicable to those choosing to report under the micro entities regime, will both include a new five-step revenue recognition model.

The new revenue model is based on a simplified version of the equivalent international accounting standard, IFRS 15 Revenue from Contracts with Customers. It includes identifying the distinct goods or services promised to a customer within a contract, determining the associated revenue and ultimately, recognising the revenue when the entity transfers the goods or services to the customer.

Among many other amendments, changes to FRS 102 also include new lease accounting requirements, whereby most leases must be included on the lessee’s balance sheet to improve transparency around its’ assets and liabilities.

The lease accounting model within FRS 105 remains unchanged however and continues to classify leases as either finance or operating leases.

IFRS 18 to be applied retrospectively 

For reporters preparing accounts under IFRS Accounting Standards, IFRS 18 Presentation and Disclosure in Financial Statements is a new standard from the International Accounting Standards Board. It provides a new, structured format to the profit and loss account, including the presentation of two new sub-totals.

While IFRS 18 isn’t effective until January 2027, entities are required to apply the standard retrospectively, meaning 2026 comparatives will need to be prepared under the new Standard.

“This is something that people really need to pay attention to because the devil is in the detail,” says Sally Baker, Head of Corporate Reporting Strategy at the ICAEW.

“At a surface level, it may not feel overly significant but we’re finding that when companies start examining the changes in detail, they’re realising it’s much more involved than they had anticipated.”

Incoming UK Sustainability Reporting Standards

The UK government is expected to finalise the first two UK Sustainability Reporting Standards (UK SRS) in early 2026.

Once available, companies will be able to adopt UK SRS on a voluntary basis. Mandatory adoption may follow, subject to further consultation, and is likely to impact listed entities first before mandating for private companies is considered.

Major consultation covering entire annual report and accounts

The incoming changes to reporting standards are significant for accountants and the profession. But, as Baker explains, 2026 will see the sector have the opportunity to respond to a UK government-led exercise which will lead to further improvements and wider reforms over the coming years.

As part of its Modernisation of Corporate Reporting programme, the government will be launching a major consultation to review the entire spectrum of the annual report and accounts.

Originally expected in late 2025 as a review of non-financial reporting, the governments’ summer pre-consultation outreach, including to ICAEW, lead them to conclude that focusing only on that aspect would “fall short of what was needed”.

Consequently, the scope of their reforms has been expanded to consider:

• the annual report and accounts in its entirety;
• remuneration reporting;
• corporate governance reporting; and
• financial reporting frameworks and digitisation. 

“It will be an opportunity to think about corporate reporting from scratch - to start with a blank sheet of paper,” says Baker. “The chance to really explore the purpose of the annual report, what information is useful to investors and that should therefore go into annual reports, and what content belongs elsewhere.”