Are you prepared for the changes to FRS 102?

The Financial Reporting Exposure Draft 82 (‘FRED 82’) proposes a suite of changes to UK GAAP. The proposed amendments seek to provide greater consistency and alignment to international accounting standards including:

  • A new model for revenue recognition, aligned to IFRS 15: Revenue from Contracts with Customers, but with some simplifications;
  • On balance sheet lease accounting for lessees, aligned to IFRS 16: Leases, but with certain practical exemptions; and
  • Other modifications to fair value measurement, uncertain tax positions, business combinations, and a revised Section 2 aligned with IASB’s Conceptual Framework.

The FRC’s latest financial reporting exposure draft FRED 82 is proposed to be effective from 1 Jan 2026:


The FRC’s latest financial reporting infographic The FRC’s latest financial reporting infographic

What are the key changes?


Leases icon


  • Based on IFRS 16 Leases: on-balance sheet lease accounting for lessees, as a right of use (RoU) asset and lease liability.
  • Lease expenses now presented as depreciation and interest. Impacting EBITDA and key metrics.
  • Exemptions available for short-term leases and leases of low-value assets.
  • Key simplifications from IFRS 16:
    • Discount rates, potentially including use of a gilt rate.
    • Contracts with multiple components as a single lease.
    • changes in index/rates and to use an unchanged discount rate when remeasuring a lease liability in certain scenarios.


  • No restatement of comparatives required.
  • Permitted to use carrying amounts for group reporting under IFRS 16 as opening balances.
  • If not applying the group exemption, asset recognised is equal to the liability on transition. Any cumulative effect of initially applying the standard is recorded as an adjustment to opening retained earnings.
Revenue icon


  • Based on IFRS 15 Revenue from Contracts with Customers: Five-step revenue recognition model – using “promises” rather than “performance obligations.”
  • Entities will need to review revenue contracts and apply the five-step model potentially impacting timing of revenue recognition.
  • In particular, will need to consider the treatment for contracts that have bundles of goods/services, variable consideration, warranties, customer options, or significant financing components.
  • Key simplifications from IFRS 15:
    • Accounting policy choice in respect of the capitalisation of costs to obtain a contract.
    • A simplified decision tree for license revenue.
    • May apply the five-step model to a portfolio of similar contracts.
    • Simplifications for allocating discounts and contract modifications.
    • Simplified agent vs principal decisions.


  • No restatement of comparatives required.
  • Only need to apply the guidance to contracts open at transition date and thereafter.

How could the changes impact my business?

The commercial impacts of the new requirements may be wide reaching, and include considering:

  • How will the amendments affect key metrics, such as EBITDA, profit and net debt?
  • Will any debt/pension covenants need to be reset if EBITDA/net debt is impacted?
  • How will you amend current remuneration, bonus and share option schemes where reward is directly linked to financial performance?
  • Will dividend payments be restricted if distributable reserves are impacted?

What should I do next?

The standards are proposed to be effective, subject to endorsement, for accounting periods beginning on or after 1 January 2026, and we would encourage companies to plan today for adopting these changes.

Performing an initial impact assessment is advised to understand the likely areas of impact for your financial statements, whether that be profit or loss or balance sheet. From that, calculations can be performed over the key areas impacted to understand the likely quantitative impact of transition ahead of a 1 January 2026 adoption date.

These amendments may require changes to systems and processes to be in place for 1 January 2026. This may involve updating charts of accounts, assessing system capabilities, and designing revised processes to ensure compliance.

Also, don’t forget the disclosure impact: the revenue recognition and lease changes will require increased disclosures in your financial statements from previous years; this will provide more information to the readers of your accounts, some of which may be sensitive around future revenue.

How can we help?

KPMG’s Accounting Advisory Services team are on hand to support you with the transition. Our team of technical accountants has significant experience in accounting standard changes including the adoption of IFRS 15 and IFRS 16 for international standard adopters. Do please reach out if you require support or require further information.

i m p a c t s Q u a n t i fi c a t i o n i m p a c t s A s s e s s m e n t R e p o r t F i n a n c i a l r e p o r t i n g T a x a n d o t h e r i m p a c t s W o r k s h o p s s o l u t i o n L o n g t e r m p o l i c y p a p e r s A c c o u n t i n g A c c o u n t i n g A s s e s s m e n t G A A P i m p a c t G A A P i m p a c t Transition Plan


  • In-person or virtual workshops tailored for finance teams to explain the new requirements and start assessing the impact.​​
  • Identify the next steps for implementation of the new accounting requirements.​​

Impact assessment

  • Review your existing accounting policies and proposed changes under FRED 82.
  • Identify customer contracts and lease portfolios.
  • Identify impacted metrics (e.g. KPIs, covenants).
  • Determine a transition approach appropriate for your business.

Accounting policies

  • Prepare accounting policy papers setting out application of the standards to your arrangements.​
  • Set out key judgements under the new standards.


  • Review revenue and lease contracts and extract data.​
  • Make contract level judgements, such as:​
    • Leases – discount rate, lease term, lease payments, practical expedients.
    • Revenue – unbundle promises, measure variable consideration, standalone selling price.​
    • Model lease and revenue contracts.

Systems and processes

  • Advise on updated processes and controls.
  • Assess lease software and model requirements.​
  • Charts of account mapping.
  • Identifying any financial statement and consolidation impact going forward.​
  • Training across the business.​


  • Tax impact assessment - transition and beyond.
  • Tax planning.

Financial reporting

  • Prepare financial statement disclosures under FRED 82.​
  • Explain changes to key metrics to stakeholders.

Read “Upcoming changes to FRS 102” for further insight and get in touch if you’d like a conversation.

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Who can help?

If you want to discuss this in more detail please contact your usual KPMG account lead or one of our experts below.