Helping you prosper
From 1 January 2026, the revised FRS 102 accounting standard will come into effect, bringing significant changes to how UK firms recognise revenue and account for leases. These updates align UK GAAP more closely with international standards, particularly IFRS 15 for revenue and IFRS 16 for leases. Below is a summary of what to expect and how to prepare.
Revenue recognition
The revised FRS 102 introduces a five‑step model for recognising revenue. This more structured, contract‑based approach requires firms to carefully assess the services they provide and when revenue should be recognised.
For ongoing management fees, it is usually based on assets under management or NAV and will continue to be recognised over time. However, firms will need to ensure their client agreements clearly reflect the nature of continuing services to support this.
For performance fees, they are treated as variable consideration. This means they can only be recognised when it is highly probable that the fee will not reverse which is unlikely to be the case for financial asset management firms. Although the revised FRS102 may feel similar to existing UK GAAP, the revised FRS 102 introduces a clearer, more structured five‑step framework aligned with IFRS 15. This means firms must perform more detailed contract analysis, identify performance obligations and assess variable consideration more rigorously than before.
For advisory and other fee‑based services, the revenue may be recognised either at completion or over time, depending on how the service is delivered and if it links to performance obligations. Firms should review whether a contract includes more than one performance obligation, especially when services are bundled together.
What this means to you
In most cases, investment management firms may not see a material change in the quantum of revenue recognised. However, they will need to apply the new standards by reassessing all client agreements, determining whether multiple performance obligations exist and documenting the basis for recognising revenue over time versus at a point in time. Where performance fees are involved, additional judgement and evidence will be required to support the timing of recognition.
Lease accounting
The revised FRS 102 removes the distinction between operating and finance leases for lessees. From 1 January 2026, almost all leases (exemption on short term agreements and low valued items), such as office space and IT equipment, must be recognised on the balance sheet as a right‑of‑use (ROU) asset and a lease liability.
What this means to you
Leases expenses that were previously treated as rental expenses will now be replaced by Depreciation of the ROU asset and Interest expense on the lease liability. This change will increase total assets and liabilities, which could affect certain key metrics that firms monitor for internal and regulatory purposes. Therefore, lease agreements need to be reviewed in detail to ensure that the relevant amendments are appropriately identified and implemented in the relevant accounting periods.
The revised FRS 102 also clarifies that comparative figures will not require restatement. Instead a modified, retrospective application is used, with a one-off adjustment made to opening reserves to reflect the cumulative impact of applying the amendments. This is intended to reduce the complexity and cost of implementation while still ensuring transparency in the first year of adoption.
However, firms will need to provide clear disclosures explaining the impact of the revised standard on current year figures and retained earnings, including its changes in accounting policies.
What comes next
These changes apply to accounting periods commencing on or after 1 January 2026, meaning clients with a December yearend will need to adopt the new requirements from 1 January 2026 for quarterly reporting purposes.
The revised FRS 102 represents a meaningful shift toward greater transparency and comparability in financial reporting. While the changes may require additional effort during implementation, they also provide a clearer link between services delivered and revenue recognised, and a more complete view of leased assets and commitments.
The next step
Our team is here to support you through the transition. If you would like help reviewing fee structures, assessing lease arrangements or understanding the impact on your financial statements, please get in touch.
