The upcoming FRS 102 and FRS 101 changes in the UK, taking effect from 2025/26, mark the biggest transformation in financial reporting in over a decade. These updates will significantly impact how accountancy firms handle lease accounting, revenue recognition, and compliance with Financial Reporting Council (FRC) requirements.
The new changes, in the form of FRS 102 and FRS 101, are primarily aimed at lease accounting and revenue recognition, with the sole intent of making these processes more transparent and in line with international standards. The new amendments from the Financial Reporting Council present UK accountancy firms with an opportunity to guide their clients through complexity, harness the power of advanced accounting technology, and elevate the role of the accountant from a compliance expert to a crucial financial advisor.
In this blog, we will discuss the key changes in FRS102 and FRS101 while charting the path ahead for the UK accountancy firms that are looking to prepare for the new financial frontier and capitalize on the new changes.
Understanding the 2025 Revisions to FRS 101 and FRS 102
Key Amendments to FRS 1: Presentation of Financial Statements
As part of the 2025 amendments to FRS101, the primary financial statements are now required to have a clearer structure and improved prominence of liquidity and risk disclosures. The financial statements will also highlight exposures and financial risks through a redesigned line-item order. Accounting firms are also required to add footnotes addressing the full disclosure of critical judgments in a clean and streamlined, narrative format
Key Amendments to FRS 2: Accounting Policies and Estimates
The amendments in FRS 102 will now require clear norms for selecting accounting policies, along with new grouping values for related estimates. Businesses will now be required to clearly explain the rationale behind aggregation, sensitivities, and disaggregation in relation to key assumptions. The narrative also clearly states the logic behind the decision in context.
While the majority of FRS 102 and FRS 101 changes will take effect in 2026, supplier finance arrangement disclosures have already been made mandatory as of 1 January 2025.
These mandates require accounting entities to clearly report key terms, payment ranges, and liability amounts for reverse factoring or supply chain finance, thereby improving the overall transparency of liquidity strategies. For the UK entities, the early adoption of these new amendments is permitted from 2025, allowing firms to apply them holistically. It is worth noting that the selective implementation of these amendments is not permitted.
Early adoption of these amendments will enable firms to:
- Conduct Impact Assessments: Accounting entities will now be able to quantify the impact of revenue and lease changes on their financial statements.
- Upgrade Systems: Early adoption of these amendments will enable the accounting software and processes to handle the new disclosures and calculations.
- Engage Stakeholders: Organizations will also get ample time to educate the stakeholders on the incoming changes and thus eradicate any last-minute surprises for their clients, lenders, and investors.
- Leverage Transition Options: Utilize practical measures, such as not restating lease comparatives or applying group IFRS 16 balances, to streamline compliance.
Thus, for businesses with complex portfolios, preparing for these amendments in 2025 will help them effectively manage client expectations and avoid any potential last-minute rush.
While preparations to fully embrace the incoming FRS 101 and FRS 102 amendments have already begun, many accountancy firms are still seeking information to help them get ready for the upcoming changes. If you are also preparing your organization, here is our comprehensive technical checklist to help you get started.
Step 1: Begin by reviewing your existing accounting templates and policies.
Step 2: Ensure that you map all your contracts, particularly those with a direct impact on cash flow, subsidiaries, and revenue recognition.
Step 3: Conduct a thorough gap analysis of your data and systems. If needed, also update your technical infrastructure.
Step 4: Educate all the stakeholders on the impending changes. You can achieve this by organizing training sessions and workshops for both your internal teams and clients.
Step 5: You should also have a detailed discussion with your clients regarding the implications of the amendments, especially the ones that will have a direct impact on debt, profitability, and operational plans.
Step 6: You must get draft accounts under ready both old and new standards, simulating the impact of the amendments, and have it ready for review.
While the FRS 101 and FRS 102 amendments might seem like a technical update, the accountancy fraternity in the UK must act swiftly to prepare for it. As an accountancy firm, you will need to engage with your clients on a deeper level, embrace technological advancements for your firm, and get mentally prepared to deliver comprehensive strategic advisory services.
If you are an accountant and consider these amendments as merely compliance requirements, you will run the risk of being left behind. However, if you consider these amendments as a growth opportunity, you will be able to strengthen your relationship with your clients and will gain a competitive edge over your counterparts.
If you need help in getting ready for these amendments in advance, write to us at marketing@datamaticsbpm.com, and we will have our UK accountancy experts reach out to you with everything that you need to get your accountancy practice ready for 2026, when the FRS 101 and FRS 102 amendments come into play in a full-fledged manner.
