If you run a small limited company, you've probably never given much thought to the accounting standard behind your annual accounts. Fair enough, that's what you pay someone for. But FRS 102 has just had its biggest shake-up in years, and it changes more than the paperwork, it can change what your numbers actually say.
What's changed
For accounting periods starting on or after 1 January 2026, two things shift for most small companies. Revenue recognition now follows a five-step model lined up with international standards, so income gets recognised when control of goods or services passes to the customer, not simply when risk transfers. For straightforward invoicing this changes little, but if you've got contracts with multiple parts, upfront payments, or ongoing service elements, it can move when revenue lands in your accounts.
The bigger one is leases. Most leases, vans, equipment, office space, now have to come onto the balance sheet as a right-of-use asset with a matching liability, rather than sitting as a simple rental cost in the P&L. Short-term and low-value leases are still exempt, but anything else, your business finance lease on the van, your premises lease, now shows up on the balance sheet in a way it never did before. You won't have to restate last year's comparatives, the adjustment lands in opening reserves instead, but the balance sheet itself looks different from this year on.
Small companies reporting under Section 1A also face a bit more required disclosure, particularly around related party transactions.
Does this affect you if you're a micro entity?
If you file under FRS 105 as a micro entity, you're largely shielded from the detail of these changes, the regime is already simplified. But if you're growing and getting close to the thresholds where you'd move from micro to small company reporting, this is worth knowing about before you get there, not after.
Why it's more than a compliance exercise
A lease suddenly appearing as an asset and a liability changes your balance sheet ratios, and that matters if you're talking to a lender, renewing a facility, or being judged against covenants. It's exactly the kind of thing that gets missed when accounts are prepared once a year and filed without a proper conversation about what they're actually showing.
This is why I don't just prepare accounts and send an invoice. If a change like this is going to affect how your business looks on paper, that's a conversation worth having before your year end, not a surprise you find out about after. If you want your accounts reviewed with this in mind, or just want someone keeping an eye on this sort of thing so you don't have to, get in touch and let's have that conversation properly.
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