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From 1 January 2026, the revised FRS 102 accounting standard will come into effect, bringing important changes to how UK firms recognise revenue and account for leases. These updates bring UK GAAP closer to international standards, particularly IFRS 15 for revenue and IFRS 16 for leases.
Below, we outline the key areas of change and what investment firms should be doing now to prepare.
Revenue recognition
The revised FRS 102 introduces a five-step model for recognising revenue. This more structured, contract-focused approach requires firms to carefully assess what services are being provided, when performance obligations are satisfied and how variable consideration is treated.
For ongoing management fees, typically calculated 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 ongoing nature of the service being provided, as this will be critical in supporting the timing of recognition.
Performance fees are treated as variable consideration under the revised standard. 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 a point in time or over time, depending on how the service is delivered and if it links to performance obligations. Firms should review whether a contract includes multiple distinct services, particularly where services offerings are bundled together.
What this means to you
In many cases, investment management firms may not see a significant change in the overall level 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, firms should expect to apply additional judgement and evidence to justify 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, including office space and certain IT equipment, must be recognised on the balance sheet as a right-of-use (ROU) asset and a lease liability, subject to exemptions for such-term leases and low-value items.
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 do not need to be restated. Instead a modified retrospective application applies, 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 and comprehensive 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. For firms with a December year-end, this means the revised requirements will apply from 1 January 2026 for quarterly reporting purposes.
The revised FRS 102 represents a meaningful shift towards 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 long-term commitments.
The next step
Our team works closely with FCA-regulated and investment management firms to navigate accounting change in a practical, proportionate way. If you would like support reviewing fee structures, assessing lease arrangements or understanding the impact on your financial statements, please get in touch with your usual UHY contact or speak to our specialist team.
