Kirk Rice Blog

Changes to Revenue Recognition Under FRS 102Written on June 19, 2026 by Kirk Rice LLP

Key Points

• The revenue recognition model in FRS 102 has been substantially rewritten, with changes effective for accounting periods beginning on or after 1 January 2026.
• The previous approach based on the transfer of risks and rewards has been replaced by a single five-step model for recognising revenue from contracts with customers.
• Entities must identify the contract, identify performance obligations, determine the transaction price, allocate the transaction price, and recognise revenue when or as each obligation is satisfied.
• Revenue is recognised at a point in time or over time, depending on when control of goods or services transfers to the customer.
• The timing and amount of revenue recognised may change, requiring more detailed judgment and documentation.

As part of the Financial Reporting Council’s Periodic Review, the revenue recognition model in FRS 102 has been substantially rewritten. These changes took effect for accounting periods beginning on or after 1 January 2026, with early adoption permitted if all amendments are applied together.

What’s New?

The old approach to revenue under UK GAAP was largely based on the transfer of risks and rewards when goods or services were provided. This has now been replaced by a single, comprehensive five-step model for recognising revenue from contracts with customers — broadly aligned with IFRS 15 ‘Revenue from Contracts with Customers’, but with some simplifications for UK use.

Who Could Be Affected?

These changes may be particularly relevant for:

• Professional service firms such as law firms, accountancy firms, architects and engineering consultancies
• Growing businesses preparing for audit requirements
• Businesses seeking finance, refinancing or investment
• Businesses that rely on management accounts and financial reporting to support decision-making

The Five-Step Model

Under the revised Section 23 – Revenue from Contracts with Customers, entities must follow these five steps when recognising revenue:

1. Identify the contract(s) with the customer.
2. Identify performance obligations — the distinct goods or services promised.
3. Determine the transaction price — the amount expected in exchange.
4. Allocate the transaction price to the identified performance obligations.
5. Recognise revenue when (or as) each performance obligation is satisfied.

Revenue is recognised either at a point in time (e.g. upon delivery of goods) or over time (e.g. as services are rendered), depending on when control of the goods or services transfers to the customer.

Key Implications

• The timing and amount of revenue recognised may change for many contracts, especially those with multiple deliverables, variable consideration, discounts, returns, or warranties.
• More detailed judgment and documentation are required to identify performance obligations and to allocate transaction prices appropriately.
• Enhanced disclosure requirements are introduced, giving users of financial statements clearer information on revenue and contract balances.

Transition Options

Entities applying FRS 102 have a choice in how they transition to the new model: they can adopt it retrospectively with restatement of comparatives, or use a modified retrospective approach with a cumulative adjustment recognised in opening retained earnings at the transition date.

These changes may have a dramatic impact on how companies recognise their revenue. While this may have an impact on their year end reporting in due course, it is important to consider the implications of these changes early on to mitigate any potentially negative consequences. Get in touch with us via info@kirkrice.co.uk

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.