FRS 102 is getting a major update from 2026, with big implications for revenue recognition and lease accounting. In our recent webinar, financial reporting specialists Neil Parsons and Alex Kelly from MHA offer practical, high-value advice designed to help you understand what’s changing, how it affects your organisation, and the steps to take to stay compliant. Here’s a quick, clear overview to help you get started.
The big picture
The new FRS 102 rules apply to periods stating from 1st January 2026 and will affect most businesses using the standard. Small entities are included too, although disclosures are lighter. Micro-entities under FRS 105 are treated differently.
If you’re reporting under FRS 102, these changes are coming and planning early will save a lot of headache later on.
What’s changing with revenue?
FRS 102 is moving to a more structured five-step model for recognising revenue. In practice, this means:
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You’ll need clearer contracts and supporting evidence.
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Bundled deals may need to be split.
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Grey areas like variable pricing and contract changes become more defined.
Even if the timing of your revenue doesn’t shift much, the analysis and documentation definitely will.
What’s changing with leases?
Most leases will now move onto your balance sheet, giving a fuller picture of the assets you use and the payments you’re committed to.
Under the new rules, you’ll recognise:
A right-of-use asset
This represents your right to use something you don’t own, such as a building, vehicle, or piece of equipment. It sits on your balance sheet like other fixed assets and is depreciated over time.
A lease liability
This shows the future payments you’re committed to making under the lease. It reduces as you pay it off and increases with interest on the outstanding balance.
Depreciation and interest instead of a simple lease cost
Where you might currently see a single “lease expense” in your P&L, this will now be split into:
This can change how your profit and performance trends look, even though your cash payments stay the same.
Key considerations for finance teams
1. Identifying what actually counts as a lease
Not every contract labelled a “lease” will meet the definition and some service contracts might contain a lease without calling it one. You’ll need to assess whether the contract gives you control over a specific asset for a period of time.
2. Understanding extension or break options
If a lease includes the option to extend or end the agreement early, you must consider whether you’re reasonably certain to use those options. This affects the total lease term and the numbers that go onto your balance sheet.
3. Selecting discount rates
You’ll need to discount future lease payments to today’s value, and choosing the right rate is important. You may need different rates for different types of leases, and the decision can significantly affect the size of the liability you record.
4. Tracking changes over time
Leases aren’t static. Renewals, rent reviews, index-linked payments, or changes in usage can all trigger a need to re-measure the asset and liability. Keeping leases up to date may require more robust systems and processes than a simple spreadsheet. Our team can help you understand what’s already available to you within your Sage solution.
5. Small entities are included too
Small entities reporting under FRS 102 will also need to bring most leases onto the balance sheet. Their relief is around disclosure, not around the core rules.
How to start preparing
Preparing now will save you time and pressure in the future. With 2026 not too far away, it's advised by experts that you start these changes to enable your team time to familiarise themselves with the new process and iron out issues.
Here are the practical steps recommended by MHA during the webinar:
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Confirm what applies to you and when your first “new rules” year begins.
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Pull together contracts and leases, tracking this down often takes longer than expected.
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Estimate the impact on assets, liabilities and profit trends.
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Loop in other teams like Sales, Procurement and IT.
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Plan for this to be ongoing, not a one-off project.
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Manage your stakeholders - numbers will change, so ensure you speak to your stakeholders so that they understand the impact.
Your solution
Lease Accounting isn’t new, but the changes coming into effect could mean your processes change quite drastically from January 2026. It’s worth taking a look at your solution and ensuring you’re making the most out of what’s already available to you.
How we can help
MHA or your accountant can support you with the accounting detail. At Datel, we’re here to help you understand what the changes mean inside your Sage systems, from data capture to reporting.
If you’d like to talk through your setup or next steps, reach out to your Datel Account Manager who is ready to help.
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