FRS 102: Upcoming changes to revenue recognition

Many companies have now entered, or are about to enter, the accounting periods in which the revised FRS 102 revenue recognition amendments take effect. With the changes applying to periods beginning on or after 1 January 2026, early consideration is essential—not only for accurate monthly reporting but also to ensure businesses are fully prepared ahead of their year‑end statutory accounts and audit processes.

Overview of the changes: A new five‑step model

FRS 102 now replaces the old Section 23 guidance with a five‑step revenue recognition model, aligned more closely with IFRS 15. This approach requires revenue to be recognised only when performance obligations are satisfied and control of goods or services transfers to the customer.

Impact on businesses

• Timing of revenue may shift for many sectors, particularly where fees are contingent or services delivered over time.
• Monthly and annual results may show greater variability due to changes in when revenue and profit can be recognised.
• Internal systems and processes may require updates to track performance obligations more precisely.

Industry examples:

Mortgage advisers

Under previous practice, many mortgage advisers recognised revenue when a mortgage offer was secured, based on the fact that advice had been given, and due to risk and rewards considerations. Under the revised model, revenue can only be recognised when the adviser has an enforceable right to the fee, which is usually on completion of the mortgage transaction. This will likely delay revenue recognition in a lot of instances.

Construction & long‑term contracting

Many businesses previously calculated revenue using an input method, typically based on the percentage of costs incurred versus total expected costs. Under the revised FRS 102, this may no longer be the most accurate measure of progress. In many cases, an output method—such as milestones achieved or units delivered—may better reflect the transfer of economic benefit. This represents a significant change, especially where profits do not accrue evenly, and may materially affect the timing of revenue and profit recognition.

Travel agents / tour operators

Historically, many travel companies recognised revenue on the date of departure. Under the revised FRS 102 principles, revenue may now need to be recognised over the duration of each arranged tour, where this more accurately depicts the performance obligations being satisfied throughout the duration of the service. This could represent a substantial shift in revenue timing and monthly profitability profiles.

Recommended actions

• Review customer contracts to identify performance obligations and enforceable rights.
• Assess the impact on monthly reporting, budgets, KPIs, and year‑end results and whether the changes are going to materially impact the company’s financial statements.
• Update accounting policies, systems, and internal controls accordingly.
• Consider early adoption if beneficial.

How HWB can help

Our Audit and Accounts team can assist with assessing the impact, updating revenue policies, preparing for transition, and training your finance team. Please contact James Flood on 023 8046 1244 or email James Flood if you have any questions.