FRS 102 Changes
Is your business ready?
For accounting periods beginning on or after 1 January 2026 there are a number of changes that will affect small UK entities and how they present their financial information. This will change how you record some elements of your financial statements and what you are required to disclose (show) in the financial statements recorded at Companies House to continue to give a true and fair view.
What is FRS 102?
FRS 102, in particular section 1A, is the main accounting standard for small entities preparing accounts under UK GAAP. It provides the framework for how small business account and record their income, expenses, assets, liabilities and how this is presented in the year end accounts filed with Companies House and reported to stakeholders.
What is changing in FRS 102 and why does it affect me?
Disclosure changes
DIVIDENDS - One of the most notable changes for owner-managed businesses is that dividend disclosures are now mandatory, not just recommended. Which will provide greater visibility of distributions in the accounts filed at Companies House. Companies will generally need to disclose:
Dividends declared and paid during the year
Dividends declared after the year end where relevant.
What implication might this have? Consider your salary and bonuses/pension contributions vs dividends. You should still consider the overall benefit of dividends and remuneration alongside the tax impact, cash flow and alignment with your commercial goals.
RELATED PARTY– small entities will need to disclose all material related party transactions. It’s important to note that whilst the related party doesn’t need specifically naming, the following will need including:
Amount outstanding/due at the reporting date
Any conditions and guarantees related to the transactions
The nature of the relationship
Transaction amounts during the period
Directors loans continue to be specifically required (amounts, interest, repayments, write offs)
GOING CONCERN – Small companies are now required to disclose their assesment as to whether the company is a going concern or whether there are any material uncertainties.
What should I do? Document your going concern assesment, retaining evidence such as forecasts and assumptions. Identify if there are any uncertainties and disclose any material uncertainties.
Leases
Another key accounting change for small businesses is how leases (office space, vehicles, machinery) are to be recognised in the accounts. Previously, many leases were treated as an expense just in the profit and loss account, under the new rules they will be recognised as a right-of-use asset on the balance sheet with a corresponding lease liability. The leases expense will now be reflected as depreciation of the right-of-use asset and interest on the lease liability in the profit and loss account.
There are exemptions provided for short-term leases (12 months or less) and leases of low-value assets.
What will this change? EBITDA, gearing and therefore how performance is measured or whether the company still meets certain performance obligations/KPI’s.
Revenue recognition
A new comprehensive five-step model for revenue recognition which requires entities to:
Identify the contract with a customer,
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations
Recognise revenue when (or as) the entity satisfies a performance obligation
Whilst this will not change revenue recognition for some small companies it is still worth reviewing your internal processes and reporting of revenue. The revenue recognition accounting policy may also need reviewing and updating to reflect any changes.
What should small companies do now?
Early preparation is vital and will help you get ahead of the reporting requirements.
Consider:
Reviewing all lease agreements and assess the impact
Review customer contracts and whether revenue recognition will change
Consider the impact on banking covenants and KPI’s
Discuss concerns and planning with your accountant if required
Contact us if you have any questions
