New rules incoming…an opportunity?
Some of our clients are using a commercial opportunity that presents itself as a result of forthcoming changes to UK accounting standards (FRS 102), relating to accounting periods beginning on or after 1 January 2026.
While these changes are technical in nature, they may present a useful opportunity for some businesses to review their plans – particularly if you are:
- considering buying or acquiring a business
- planning to raise funding or refinance, where covenant measures matter
- investing in capital infrastructure
- or thinking about a future disposal or exit
The way your accounts look (and the timing of when changes take effect) can influence how your business is perceived by lenders, investors and buyer – the new rules may improve your results, particularly EBITDA.
For some clients, adopting the new rules earlier (where permitted) or planning carefully for the transition may be worth considering.
What is changing?
The most significant amendments to FRS 102 are:
1. Leases (Section 20)
- Most leases will move onto the balance sheet, with a right-of-use asset and a corresponding lease liability recognised.
- This will increase reported assets and liabilities and may affect key metrics.
- Common examples include leased offices and vehicles on contract hire.
- Additional disclosures will also be required.
2. Revenue recognition (Section 23)
- A new, principles-based five-step model for recognising revenue will be introduced.
- This replaces much of the existing guidance and may change the timing of revenue recognition, particularly for contracts with multiple elements, variable consideration, or longer-term arrangements.
- There are also some more minor disclosure changes.
Why this matters?
These amendments can have a noticeable impact on headline figures and ratios such as EBITDA, gearing and interest cover.
As a result, they may affect funding discussions, covenant compliance and external perceptions of performance.
For businesses with a December year-end (and no long or short accounting periods), the first accounts affected would be for the year ending 31 December 2026.
If there is concern that the changes could have an adverse impact, there may be planning options available now, including consideration of transition timing.
Next steps
Alexander Knight & Co is very happy to support you with impact assessments, transition planning and implementation of the new requirements.
