FRS 102 - Summary of the Key Changes

Key Changes to FRS 102 (2024 Amendments)

1. Lease accounting – most leases move onto the balance sheet

• The distinction between operating leases and finance leases for lessees is removed.
• Companies must recognise:
  • a right-of-use (ROU) asset based on the present value of lease payments. This is then depreciated on a straight line basis over the life of the asset.
  • a lease liability, based on the ROU asset and released based on the discount factor used.

Exceptions:

• Short-term leases (≤12 months) – these can be expensed to the profit loss account as an operating lease is today.
• Low-value asset leases – these can also be expenses, but it is key to note this is based on the nature of the asset, not just the value. And it definitely does not depend on the value of the lease payments. For example, leases of property and vehicles are never low-value.

Impact:

• Higher assets and liabilities
• Potential to confuse investors
• Potential to change size of the company
• Lease costs split into:
  • depreciation of the ROU asset
  • interest expense on the liability.

2. New revenue recognition model

Revenue is now recognised using a five-step model:

1. Identify the contract with a customer
2. Identify performance obligations
3. Determine the transaction price
4. Allocate price to obligations
5. Recognise revenue when obligations are satisfied.

Impact:

• Revenue recognised when control transfers, not just when risks and rewards transfer.
• May change timing of revenue recognition in complex contracts.

3. Changes to Section 1A small entity disclosures

• More mandatory disclosure to ensure accounts give a true and fair view
• Increased related party disclosure to bring small companies in line with medium and large companies

4. Changes for Charities

• New Tier structure with reduced disclosure for the lower tiers. Tier 1: Income < £500K, Tier 2: £500K < Income < £15M and Tier 3: Income > £15M.
• Increased disclosure in the trustees report on how a charity is responding to and managing environmental, governance and social matters; impact reporting is now a ‘must’ for all charities; and tier 2 and tier 3 charities should provide more narrative on how legacies are recognised in the financial statements.
• Only charities with income of more than £15 million are required by the SORP to produce a cash flow statement.
• A new section added on leases to comply with FRS 102. For discounted leases, need to decide if it is a real lease or not:
  • Leases at a peppercorn rent are not treated as a lease.
  • Leases at a discount are treated as a lease.
  • Leases with a discount are “grossed-up” for the purposes of accounting with the difference treated as a donation. However, the uplift is based on what the trustees would have paid, not what the market value of the property.

20:20 Innovation have a range of course to help firms upskill their teams, and key courses to book are:

Accounting Update - Spring (3 March 2026)

FRS 102 - Accounting for Income - Practical considerations (12 May 2026)

FRS 102 - Accounting for Leases - Practical considerations (19 May 2026)

Charities - Accounting for Income under the New SORP (20 May 2026)

Charities - Accounting for Leases under the New SORP (27 May 2026)