Business People Planning Strategy Analysis from financial document report

How businesses can prepare for FRS 102 revenue recognition changes

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2 minute read 11 Sept 2025
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The new IFRS-aligned revenue recognition model is a comprehensive five-step process that is required to be implemented across all industries.

In brief

  • The new revenue recognition model will be effective from 1 January 2026, with early adoption permitted.
  • Entities need to identify drivers of complexity when adopting the new model to assess how impactful the new standard is to an entity.
  • Entities are advised to plan early for this significant change by considering the level of effort, technical resources, and timing required to ensure seamless adoption.

How EY can help

FRS 102 is subject to a periodic review every five years. On March 27, 2024, the Financial Reporting Council (FRC) published the Amendments to FRS 102, marking the completion of its second periodic review of this financial reporting standard.

 

Following the periodic review, the revenue recognition section has undergone significant revisions to better align with International Financial Reporting Standards (IFRS). The previous revenue recognition model, which was based on outdated international accounting standards (IAS 18 and IAS 11), has been replaced by a unified and comprehensive five-step model akin to the framework established in IFRS 15.

 

Effective date for application of the new revenue recognition model is periods beginning on or after 1 January 2026, with early adoption permitted.

 

The new revenue recognition model will be implemented across all industries. Entities must identify key complexity drivers, including the duration of the revenue cycle, the number of business lines, the nature of contracts, and the required level of technical expertise, among others. This assessment is crucial for understanding the potential impact of the new standard on the organisation.

 

As an example, if an entity has standardised contracts, it will experience less complexity in adopting the new revenue model compared to an entity that has customised contracts.

 

It is essential to understand the challenges of adhering to the revised standard requirements as this will help organisations and their management to plan the necessary work, resources, and time needed to implement the changes.

Actions to navigate challenges and complexities

  • Entities should plan early for the upcoming change as failing to do so can lead to unexpected challenges with serious consequences if not addressed in a timely manner.
  • Management should first understand the new standard requirements for revenue recognition and conduct an impact assessment.
  • It is essential for management to select an appropriate transition method and to make accounting policy decisions.
  • Management must grasp the implications of the revenue recognition changes early to effectively manage the implications and communicate them to relevant stakeholders.
  • Management should evaluate resource needs and consider whether accounting systems require updates to capture new information as this could affect processes, controls, and training requirements.

Summary

The new revenue recognition model represents a significant shift from the previous revenue recognition principles and will require substantial time, effort, and commitment from the management. Early involvement of management is crucial to ensure the successful implementation of the new requirements and to effectively address the associated complexities and challenges. Conducting timely impact assessments and evaluating the potential effects of the new accounting requirements on existing systems and data are essential for navigating this major accounting change.

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