New Revenue Recognition Model for FRS 102 and FRS 105
From accounting periods beginning 1 January 2026, the Financial Reporting Council has introduced a substantial overhaul to revenue recognition requirements in FRS 102 and FRS 105, the UK Generally Accepted Accounting Principles. The new model replaces the long-standing "risks and rewards" approach with a five-step framework that aligns UK GAAP with International Financial Reporting Standards (IFRS 15).
The five steps require entities to identify the performance obligations in contracts with customers and recognise revenue as control of promised goods or services transfers to the customer. This is a fundamental shift from the previous approach which focused on risks and rewards of ownership.
For most businesses, this change may result in different revenue profiles and timing compared to the previous standards. Directors and accountants must review customer contracts and ensure revenue policies are updated before their next year-end. FRS 105 includes a simplified version of the model for smaller entities.
The changes affect all companies reporting under UK GAAP, including private companies, charities, and other entities using FRS 102 and FRS 105. Early adoption is permitted provided the 2026 amendments are applied together. Speak with your accountant now to review your revenue recognition policies and ensure compliance for the next reporting period.