FRS 102 is the main financial reporting standard under UK GAAP for UK and Republic of Ireland entities that don’t use IFRS, FRS 101 or FRS 105. Amendments from the FRC’s 2024 periodic review apply to accounting periods beginning on or after 1 January 2026, bringing IFRS-style revenue and lease accounting into FRS 102.
UK GAAP is a set of guidelines or principles that you and your clients must follow while making their financial statements. GAAP is vast and contains multiple financial reporting standard protocols, including the important FRS 102 (Financial Reporting Standards). In this blog, we will focus on FRS 102, its importance, and its impact on UK GAAP. This post was updated in October 2026 to cover the changes that took effect on 1 January 2026.
Key takeaways
- The FRC’s FRS 102 amendments apply to periods beginning on or after 1 January 2026.
- Revenue follows a five-step model and lessees put most leases on the balance sheet.
- Corporation tax starts from accounting profit, so transition adjustments can change tax timing.
- Company size thresholds rose on 6 April 2025, so some clients may now report differently.
What is FRS 102?
FRS 102 is a financial reporting standard applicable in the UK and the Republic of Ireland. This standard fixes the recognition and measurement rules and disclosure requirements for businesses that apply it. The Financial Reporting Council (FRC) is responsible for reviewing and maintaining FRS 102, and it must be noted that this standard is subject to changes as per the stakeholders’ requirements.
FRS 102 is an extensively adopted accounting standard in the United Kingdom and Ireland, but it is not the only one an entity can apply. Businesses can adopt other accounting standards, such as FRS 105, FRS 101, FRS 104, and IFRS.
Before FRS 102, multiple accounting standards existed in the UK and Ireland, but now there is a single standard, thus reducing complexity. The FRS 102 standard applies to an entity’s financial statements and financial reporting and is also applicable to entities that are not considered profit-oriented.
What is UK GAAP?
UK GAAP is the set of accounting principles UK businesses follow when preparing financial statements. The Financial Reporting Council publishes and updates the UK GAAP, a set of accounting principles and guidelines businesses in the UK should follow when preparing their financial reports and accounts.
Once businesses prepare reports or when accounting practices prepare balance sheets and profit and loss statements on their behalf according to UK GAAP, they must submit them to HMRC and Companies House. The ONS counted 2.73 million VAT and/or PAYE-registered UK businesses in March 2025, and 76.7% were companies or public corporations (ONS, published 24 September 2025).
Key Differences Between Existing UK GAAP and FRS 102 – What Is Different?
FRS 102 changed how several items are recognised and measured compared with the old SSAPs and FRSs, including stock, investment property, goodwill, leases and deferred tax. The UK GAAP is a collection of accounting guidelines and principles that must be followed when making financial statements, and the addition of the FRS 102 standard has been one of the most significant ones. After its introduction, it has significantly impacted the financial statements created by businesses and accounting practices based in the UK and following the UK GAAP.
The FRS 102 standard has brought changes not only in the format of financial statements but also in the numbers compared with the old GAAP. These changes are:
- Criteria for recognising certain assets and liabilities
- Measurement basis of items
- How some gains and losses are dealt with
When you compare the old UK GAAP with the one included with the FRS 102 standard, you will notice differences. These differences are as follows:
Cash Flow Statement
FRS 102 does not exempt cash flow statements from preparation but has introduced some presentational changes. Under FRS 102, the prepared cash flow statement will have three classifications: operating activities, investing activities, and financing activities. Small entities and some qualifying subsidiaries are exempt.
Correction of Errors
Under FRS 102, where an error is material, it will be corrected through a prior-period adjustment. Hence, more errors are expected to be corrected through a period adjustment.
Stock Valuation
Before FRS 102, SSAP 9 allowed the use of the LIFO method of stock valuation. However, with FRS coming into force, it has outlawed the LIFO method. Hence, those businesses or entities that employ the LIFO method will have to choose between FIFO or average cost.
Investment Property
Under SSAP 19, fair value gains and losses are taken directly to the revaluation reserve. However, under FRS 102, gains and losses related to fair value fluctuations are taken directly to profit or loss. It is important to note that under FRS 102, fair value gains cannot be distributed as dividends to shareholders.
Intangible Assets and Goodwill
The economic life of intangible assets and goodwill under FRS 10 is limited to periods of 20 years or less. This can be refuted, and economic life can be made longer or infinite in certain circumstances. However, under FRS, the useful economic life of intangible assets and goodwill is 10 years or less if you cannot estimate the useful life reliably.
Leasing
In SSAP 21, leases are treated as finance leases when the present value of the minimum lease payments equals 90% or more of the fair value of the leased asset. However, under FRS, there is no such 90% guideline. In its place, the lease is usually indicative of a finance lease when all of the present value of the minimum lease payments is equal to the fair value of the leased asset. From 1 January 2026, most lessees put leases on the balance sheet (see the next section).
Deferred tax
FRS 19 excludes deferred tax on revalued assets if no binding sale agreement exists and the gain or loss. Under FRS, deferred tax is recognized on revalued assets, even without a binding sale agreement. The rate used in calculating the deferred tax is the rate that would apply to the disposal of the asset.
Grants
SSAP 4 requires matching grant income with related expenses in the profit and loss account. Under FRS, entities can choose to recognize grant income. Recognize grant income by either meeting performance-related conditions or matching it to related expenses.
What Changed in FRS 102 from 1 January 2026?
Revenue and leases changed most. The FRC issued the amendments on 27 March 2024, and most apply to periods beginning on or after 1 January 2026; early adoption is allowed if all amendments are adopted together (FRC). The FRC’s June 2026 explainer describes the aim as closer alignment with IFRS 15, IFRS 16 and IFRS 13.
| Area | Before | From 1 January 2026 |
| Revenue (Section 23) | Based mainly on risks and rewards and stage of completion | Five-step model; timing of revenue may change |
| Leases (Section 20) | Operating leases expensed, off balance sheet | Right-of-use asset and lease liability; short-term and low-value exemptions |
Two knock-on points for your clients. First, corporation tax starts from accounting profit, and transition adjustments generally fall into the first period the new rules apply (ICAEW; see HMRC’s Business Income Manual). Second, company size thresholds rose on 6 April 2025: small is now £15m turnover and medium £54m (SI 2024/1303).
People Also Ask
When do the FRS 102 amendments take effect?
Most of the FRS 102 periodic review amendments apply to accounting periods beginning on or after 1 January 2026. A company with a 31 December year end therefore reports under the new rules for the year ending 31 December 2026. Early adoption is allowed, but only if all the amendments are adopted together. Supplier finance disclosures started a year earlier, from 1 January 2025.
What is the biggest change to FRS 102 in 2026?
Revenue and leases. Section 23 now follows the IFRS 15 five-step revenue model, which can change when revenue is recognised. Section 20 requires lessees to put most leases on the balance sheet as a right-of-use asset and a lease liability, with exemptions for short-term and low-value leases. Both changes affect profit, ratios and tax timing.
Does FRS 102 allow the LIFO method for stock?
No. FRS 102 does not permit the last-in, first-out (LIFO) method, used by some entities under older UK GAAP. Entities still using LIFO must switch to first-in, first-out (FIFO) or weighted average cost when measuring inventory. The choice should be applied consistently to stock of a similar nature, and the change in policy may need disclosing in the accounts.
Do FRS 102 changes affect corporation tax?
Yes, often. Corporation tax starts from the profit in the accounts, so a change in when revenue or lease costs are recognised can move taxable profit. Transitional adjustments generally fall into the first period the new rules apply. HMRC’s Business Income Manual covers the rules, so model the tax effect before year end, not after.
Can an accountancy practice outsource FRS 102 work?
Yes. UK practices can outsource year-end accounts preparation, reconciliations and checks to an outsourced team while keeping review and sign-off in-house. Corientbs works with UK accountancy firms on this basis, using people plus AI tools such as Luca for year-end and Sherlock for error detection. Your own team stays responsible for the final accounts.
Conclusion
The main objective of this blog is to explain FRS 102, which is part of UK GAAP, in the simplest possible way and how it impacts how you will make financial statements for your clients. However, we can understand the complexities involved and know that it can potentially divert your attention away from other important accounting tasks. We suggest you outsource this complex but important work to a professional accounting outsourcing service provider like Corientbs to avoid such distractions and reduce your workload.
Our highly professional accountants are well-trained in the latest accounting standards and updated UK GAAP, including FRS. Our accountants use advanced software, boosting accuracy, saving time, and enhancing productivity. Corientbs is a Coventry-based team that supports UK accountancy firms with people and AI, covering year-end accounts, corporation tax, and audit support, with tools such as Luca for year-end and Sherlock for error detection. For more information about our services or to share your requirements, please contact us via our website.
