FRS 102 vs IFRS: UK GAAP after the 2026 changes

FRS 102 and IFRS in brief

FRS 102 is the Financial Reporting Standard applicable in the UK and Republic of Ireland, issued by the Financial Reporting Council, and it is the main UK GAAP for unlisted companies. IFRS, in the UK form of UK-adopted international accounting standards, is required for the consolidated accounts of companies with securities traded on a UK regulated market. The choice matters because the two still differ on goodwill, credit losses, deferred tax and presentation.

The gap narrowed on 1 January 2026. The FRC's Periodic Review 2024 amendments, issued in March 2024, brought most leases onto the balance sheet and introduced a five-step revenue model for periods beginning on or after that date. As of September 2026, calendar-year companies are therefore in their first FRS 102 year under the new rules. This guide covers who uses which framework, what changed, the differences that remain and a worked lease transition in GBP.

The UK framework family: who uses what

UK GAAP is a family of standards rather than one book. FRS 100 decides which standard an entity applies; the others supply the requirements. Company law, not the FRC, sets the size tests that unlock the simpler options.

• UK-adopted IFRS: required for the consolidated accounts of companies whose securities trade on a UK regulated market, and available to any other company that opts in
• FRS 101 Reduced Disclosure Framework: IFRS recognition and measurement with fewer disclosures, for the individual accounts of qualifying entities included in publicly available consolidated accounts, most often members of IFRS groups
• FRS 102: the default for other companies, charities, pension schemes and many public benefit entities; Section 1A gives small entities reduced presentation and disclosure
• FRS 105: a single, simpler standard for micro-entities, with no deferred tax, no fair value or revaluation, and minimal notes
• FRS 103 Insurance Contracts and FRS 104 Interim Financial Reporting: supplements for insurers and interim reports
• Ireland: FRS 102 and FRS 105 also apply in the Republic of Ireland, alongside EU-adopted IFRS

Size thresholds from April 2025

The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 raised the company size thresholds by about 50 percent for financial years beginning on or after 6 April 2025. A company qualifies for a size category if it meets at least two of the three conditions, normally for two consecutive years; a transitional provision lets companies assume the new thresholds also applied to the previous year, so the relief is available immediately. The FRC amended FRS 102 on 21 March 2025 to reflect the change.

• Micro-entity (may use FRS 105): turnover up to GBP 1 million, balance sheet total up to GBP 500,000, up to 10 employees
• Small (may use FRS 102 Section 1A): turnover up to GBP 15 million, balance sheet total up to GBP 7.5 million, up to 50 employees
• Medium: turnover up to GBP 54 million, balance sheet total up to GBP 27 million, up to 250 employees
• Example: a company with turnover of GBP 12 million, a balance sheet total of GBP 8 million and 45 employees meets two of three small tests (turnover and employees) and is small, even though its balance sheet exceeds GBP 7.5 million

What the Periodic Review 2024 changed

The amendments are effective for accounting periods beginning on or after 1 January 2026, with early application permitted provided all the amendments are applied together; the new disclosures on supplier finance arrangements applied a year earlier, from 1 January 2025. The FRC's stated aim was proportionate alignment with IFRS 15 and IFRS 16, not copying them.

The FRC deliberately did not introduce the IFRS 9 expected credit loss model, deferring that decision until after the IASB's third edition of the IFRS for SMEs Standard. Under Sections 11 and 12, which most FRS 102 reporters apply, impairment of financial assets therefore still follows an incurred-loss approach; an entity can instead elect IFRS 9 recognition and measurement as an accounting policy choice. Our guide on IFRS for SMEs explains the IASB side.

• Section 20 Leases: lessees recognise a right-of-use asset and a lease liability for most leases, with exemptions for short-term leases and leases of low-value assets; lessor accounting is largely unchanged
• Lease discount rate: the rate implicit in the lease, the lessee's incremental borrowing rate, or a simpler obtainable borrowing rate
• Section 23 Revenue from Contracts with Customers: a five-step model recognising revenue when or as control transfers
• Section 2A Fair Value Measurement: consolidated fair value guidance based on IFRS 13
• Section 2 and the Concepts: updated for the IASB's 2018 Conceptual Framework
• Section 29 Income Tax: new requirements for uncertain tax treatments
• Transition: leases on a modified retrospective basis with no restatement of comparatives; revenue fully or modified retrospectively

Worked example: bringing a lease on balance sheet

A UK company with a 31 December year end rents offices at GBP 50,000 a year, paid at each year end, with five years left on the lease at 1 January 2026. Under the old FRS 102 this was an operating lease and the rent was simply expensed. Using a borrowing rate of 6 percent, the present value factor for five annual payments is 4.2124, so the lease liability at 1 January 2026 is 210,618. Under the modified retrospective approach, the right-of-use asset is recognised at the same amount (adjusted for any prepaid or accrued rent) and 2025 comparatives are not restated.

For 2026, interest is 6 percent of 210,618 = 12,637 and depreciation is 210,618 over five years = 42,124, a total charge of 54,761 against rent of 50,000 under the old rules. Year-end entries: Dr Interest expense 12,637 / Cr Lease liability 12,637; Dr Lease liability 50,000 / Cr Cash 50,000; Dr Depreciation 42,124 / Cr Right-of-use asset 42,124. The liability at 31 December 2026 is 210,618 plus 12,637 minus 50,000 = 173,255.

Next year's interest is 10,395 (6 percent of 173,255), so the current portion of the liability at 31 December 2026 is 50,000 minus 10,395 = 39,605 and the non-current portion 133,650. Operating profit rises by 7,876 (rent of 50,000 replaced by depreciation of 42,124), EBITDA rises by the full 50,000, and net debt rises by 173,255. Check loan covenants: most were written on the old basis and may need a frozen-GAAP clause. Our guide on IFRS 16 leases shows the IFRS version of the same schedule.

Worked example: a volume rebate under the new Section 23

A UK distributor sells a component at GBP 50 per unit under a one-year contract that gives the customer a 10 percent retrospective rebate if it buys more than 10,000 units in the year. Based on order history, the distributor expects the customer to buy about 12,000 units, so it expects to pay the rebate and estimates the consideration net of it from the first sale.

In the first quarter the customer buys 3,000 units and is invoiced GBP 150,000. Under the five-step model the consideration is variable, so the distributor recognises revenue of 3,000 x 45 = 135,000 and a refund liability of 15,000: Dr Trade receivables 150,000 / Cr Revenue 135,000 / Cr Refund liability 15,000 (VAT ignored for simplicity). If later evidence showed that the customer would not reach 10,000 units, the estimate would be updated and the 15,000 released to revenue. Our guide on IFRS 15 revenue recognition covers variable consideration in full.

Differences that remain between FRS 102 and IFRS

After 2026, FRS 102 and IFRS agree much more often on the face of the balance sheet, but these differences still change numbers and deserve a line in any group conversion schedule.

• Goodwill: amortised under FRS 102 over its useful life, capped at ten years when the life cannot be estimated reliably; not amortised under IFRS but tested annually for impairment (see our guide on goodwill and intangible assets)
• Financial asset impairment: incurred loss under FRS 102 Sections 11 and 12 unless IFRS 9 is elected; expected credit losses under IFRS 9
• Development costs and borrowing costs: capitalisation is an accounting policy choice under FRS 102; required under IAS 38 and IAS 23 when the criteria are met
• Deferred tax: the timing differences plus approach in FRS 102 against the temporary difference approach in IAS 12, which produce different balances on business combinations and revaluations
• Investment property: measured at fair value through profit or loss when that is possible without undue cost or effort; IAS 40 offers a choice of fair value or cost
• Leases: FRS 102 allows a broader low-value exemption and an obtainable borrowing rate, so lease balances can differ from IFRS 16 for the same contract
• Group reconstructions: FRS 102 permits merger accounting for qualifying reorganisations; IFRS has no equivalent
• Presentation: FRS 102 companies use Companies Act formats, while IFRS reporters apply IFRS 18 from 1 January 2027

Presentation after IFRS 18

IFRS 18, which replaces IAS 1 for IFRS reporters for annual periods beginning on or after 1 January 2027, adds operating, investing and financing categories to the income statement. UK company law allows an FRS 102 company to use adapted formats instead of the traditional statutory formats, and the adapted formats followed IAS 1. In February 2026 the FRC amended FRS 102 so that entities choosing adapted formats can follow the IFRS 18 approach, effective for periods beginning on or after 1 January 2027. Companies that keep the statutory formats are not affected. Our guide on IFRS 18 explains the new categories and subtotals.

For a group that reports under IFRS but keeps FRS 102 in its UK subsidiaries, the practical effect is that consolidation packs must map subsidiary profit and loss lines to the IFRS 18 categories from 2027, even where the subsidiary's own statutory accounts do not change.

Choosing between FRS 102, FRS 101 and IFRS

For a standalone private company, FRS 102 is usually the lower-cost answer, with Section 1A or FRS 105 when the size tests allow. The question becomes real in groups and in companies planning to raise capital.

• Subsidiary of an IFRS group: FRS 101 lets it keep IFRS measurement, so no conversion adjustments, with far fewer disclosures
• Parent planning a listing on a UK regulated market: IFRS consolidated accounts will be required, so move early and avoid restating twice
• Group with private equity or foreign investors: ask which framework their reporting and covenants assume
• Company with material goodwill: FRS 102 amortisation reduces profit every year, while IFRS avoids amortisation but brings annual impairment testing
• Company with material receivables or lending: compare the incurred-loss and expected-credit-loss outcomes before choosing
• Micro-entity: FRS 105 is the simplest option, but it forbids revaluation and fair value, which some lenders and investors may ask for

Keeping FRS 102 books in Skyline Nexus ERP

Skyline Nexus ERP installs with a starter chart of accounts template, Saudi, UAE or Generic, and a UK company would start from Generic and map it to the Companies Act formats. Each account type carries reporting classifications for the P&L category, current or non-current position and cash flow activity, which drive the Income Statement, Balance Sheet and Cash Flow reports. Fiscal years take their own start and end dates, so a non-December year end is supported, and periods can be soft-closed or locked.

The new lease and revenue entries, such as the interest, depreciation and rebate postings above, are made as manual journals, which must balance and can carry a cost centre, and fit naturally into the monthly close. The Asset Management module supports several depreciation methods. The Audit Pack export for auditors is organised by calendar year, so a company with a March or June year end exports the Trial Balance, statements and ledgers for its own date range from the individual reports, which all offer Excel and PDF export. Making Tax Digital for VAT is a separate compliance topic, covered in our guide on UK Making Tax Digital.