Amendments to The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS) become effective for periods beginning on or after the 1 January 2026.
These are significant changes, and we are recommending that our clients take time to understand the potential impact to their financial accounting processes ahead of the implementation date.
These changes are being made in order to align the UK accounting standards with the International Financial Reporting Standards (IFRS), particularly in regard to:
- Revenue: A new five-step model for revenue recognition is to be implemented; and
- Leases: bringing operating leases onto the balance sheet for lessees (exemptions permitting).
Summary of significant changes
Leases
The concept of operating and finance leases are no longer applicable.
Contracts that meet the definition of a lease will be recognised on the balance sheet via reporting of a right of use asset and a lease liability.
Depreciation and interest charges will be accounted for and have the potential to impact some reporting measures commonly used to assess business performance and compliance with covenants.
Revenue
A five-step model to revenue recognition will be applied.
This model could give rise to changes on the timing of revenue recognised in your financial statements.
More detailed considerations are required when goods and services are provided in bundles, involving variable consideration, warranties, options and financing components.
Impact on your business/operations
The above amendments could impact key performance measures in a company (including profit and EBITDA). Consideration and early planning should be given to:
- Any remuneration tied to financial performance.
- Financing covenants tied to debt on a company’s balance sheet; and impact on a company’s distributable reserves and dividend planning activities.
How we help
At Randall & Payne we make success your priority, and in the coming months will be supporting clients through the transition process, via impact assessments and training resources. Keep an eye on our social media channels for more information on how we can support you with the changes coming.
For any queries or comments in the meantime, please reach out to our team.
Contact Tom Bayliss for more information by emailing thomas.bayliss@randall-payne.co.uk or call 01242 776000.
