Major accounting changes are around the corner: what do you need to know?

From 1 January 2026, significant amendments to UK GAAP will come into effect. These changes introduce new requirements for lease accounting and revenue recognition, impacting how businesses report financial performance. While the updates aim to align UK GAAP more closely with international standards, they bring practical challenges for the real estate and construction sector.

For real estate, the biggest impact falls on tenants that will move to an on-balance sheet lease model for the majority of leases. However, tenants will continue to expense turnover rent to the income statement, meaning they may become more sensitive to how turnover rent is determined.

The new leasing model has limited impact on lessor accounting for property leases classed as operating leases. There are some minor changes for property finance leases. For example, variable lease payments will only be included in the net investment in the lease if linked to an index or rate and there is new guidance on accounting for a modification of a finance lease.

For investment properties measured at fair value, the fair value measurement principles of UK GAAP have been aligned to IFRS 13 Fair Value. This is unlikely to impact external property valuations, although accounting policies will need to reflect the revised fair value measurement guidance.

Construction projects are often long and complex, requiring businesses to rely on judgements and estimates about their final account position. Traditionally, the industry has used the percentage-of-completion method, recognising revenue and margin proportionately over time as projects progress, rather than upon completion. While this approach will largely continue, businesses should not underestimate the application of the five-step revenue recognition model embedded in the new standard.

Each contract must be analysed to identify specific performance obligations. For contracts that involve multiple asset handovers, if those deliverables are interlinked and cannot be fulfilled separately, they may represent a single performance obligation which may impact the amount and timing of revenue recognition. Therefore, careful consideration of contract terms and interconnectivity is essential.

Change orders, variations, and liquidated damages are integral to construction. These components must be assessed against guidance on variable consideration to determine the transaction price at inception and throughout the stages of completion of the project.

The amendments also introduce new guidance on capitalisation of contract costs that may change current practice. Businesses must assess whether pre-contract costs, such as viability assessments and pre-planning expenses, meet the new criteria for capitalisation.

Businesses have the option to either adjust their opening reserves for revenue contracts that remain active at the time of implementation, or to apply the changes retrospectively, restating comparative figures. Management must carefully evaluate which adoption approach best suits their organisation, taking into account the practical implications of the amendments as well as the resources available.

With 1 January 2026 fast approaching, businesses should not delay their assessment of the amendments, so that any impact on KPIs, profit related pay, tax, or covenants are managed and any changes in current practice are communicated to stakeholders.

More information on the impact of the FRS 102 amendments on real estate and construction can be found via the hyperlink, in addition to a wider hub of information on all accounting changes. Reach out to Stacy Eden, Head of Real Estate at RSM, for more information.

ICAEW’s Construction & Real Estate Community will be running a webinar in early 2026 to further cover the changes.

^{*the views expressed are the authors’ and not ICAEW's}