The FRS 102 migration process is now a high-priority task for UK businesses and non-profit organisations preparing for the updated UK GAAP financial reporting standards. With the Financial Reporting Council’s (FRC) major amendments to FRS 102 due to come into full effect from 1 January 2026, 2025 marks the critical implementation and preparation year. These changes are the most comprehensive update to FRS 102 since its inception in 2015 and align more closely with international standards, namely IFRS 15 (Revenue from Contracts with Customers) and IFRS 16 (Leases).
This in-depth guide will walk you through the key regulatory updates, outline a clear FRS 102 migration timeline, and provide a step-by-step plan to ensure your organisation remains fully compliant. You’ll also discover how Insights UK can provide essential support throughout this complex transition.
Why FRS 102 Migration in 2025 Matters
The 2024 FRC amendments to FRS 102 have redefined how revenue and leases must be accounted for. Organisations reporting under UK GAAP must now prepare to adopt new principles that enhance consistency, comparability, and clarity in financial reporting.
While early adoption is permitted from 1 January 2025, full mandatory adoption starts with accounting periods beginning on or after 1 January 2026. That means 2025 is the final staging year to assess impact, align policies, modify systems, and train teams.
Who Is Affected by the 2025 FRS 102 Changes?
These changes apply to:
- Medium and large private entities reporting under UK GAAP
- Charities following the Charity SORP (aligned with FRS 102)
- Housing associations
- Not-for-profit and public benefit entities
- Subsidiaries using the reduced disclosure framework (FRS 101, indirectly)
- Any group preparing consolidated financial statements under UK GAAP
Micro-entities using FRS 105 are not directly affected, though some may opt to switch depending on future growth or reporting needs.
What’s Changing in the Revised FRS 102?
Here’s a breakdown of the most impactful updates that drive the FRS 102 migration in 2025:
1. Revenue Recognition – Five-Step Model (Based on IFRS 15)
This introduces a structured method to recognise revenue:
- Identify the contract with the customer.
- Identify performance obligations.
- Determine the transaction price.
- Allocate the price to obligations.
- Recognise revenue as obligations are fulfilled.
This model replaces the more flexible ‘transfer of risk and reward’ approach and demands greater detail in documentation and disclosures.
2. Lease Accounting – On-Balance Sheet Model (Based on IFRS 16)
All leases (except short-term or low-value leases) must now be recognised as:
- A right-of-use asset
- A lease liability
This significantly changes financial statements, increasing both assets and liabilities. It also affects EBITDA and loan covenants.
3. New Disclosure Requirements
Entities must now provide:
- Enhanced revenue breakdowns
- Lease terms and assumptions
- Judgements made in applying accounting policies
- Reconciliations of opening and closing balances for key accounts
4. Transition Provisions
Entities will adopt a modified retrospective approach, with optional practical expedients. You won’t need to restate comparatives but must disclose impacts in the transition note.
2025 Timeline for FRS 102 Migration
Here’s a detailed migration timeline:
|
Quarter |
Milestone |
| Q1 2025 | Conduct full impact assessment. Identify changes in revenue, leases, etc. |
| Q2 2025 | Draft updated accounting policies and begin staff training. |
| Q3 2025 | Perform trial parallel reporting (old vs new). Adjust systems. |
| Q4 2025 | Finalise updated disclosures and prepare for the first full application. |
Early adopters will begin using the new standard in annual reports for periods starting 1 Jan 2025. Others must be fully compliant by 1 Jan 2026.
Step-by-Step FRS 102 Migration Plan
Step 1: Project Launch and Stakeholder Engagement
Establish a transition task force led by finance, supported by IT, HR, operations, and legal. Assign clear responsibilities.
Step 2: Perform a Technical Impact Analysis
Analyse:
- Customer contracts
- Lease agreements
- KPIs and loan covenants
- Disclosures
- Tax implications
Quantify impacts on balance sheet, P&L, and performance metrics.
Step 3: Update Accounting Policies
Redraft revenue and lease accounting policies in line with the new FRS 102. Ensure policies are clear, documented, and ready for audit scrutiny.
Step 4: Modify Systems and Templates
- Configure ERP and accounting software
- Adjust the chart of accounts
- Build new lease and revenue tracking modules
- Update reporting dashboards and KPIs
Step 5: Implement Parallel Reporting
Test-drive the new standards by producing draft financials under both the old and new FRS 102. Refine processes, check for errors, and train teams using live data.
Step 6: Prepare Transition Disclosures
You must disclose:
- The nature of the changes
- Quantitative impact on financial position and performance
- The transition methodology adopted
- Any practical expedients used
Special Considerations for Charities and Not-for-Profits
The Charity SORP will be revised to align with updated FRS 102, likely by late 2025. Key considerations:
- Restricted and unrestricted income must be carefully assessed under the five-step revenue model.
- Grants, donations, and legacies may require different treatment.
- Operating leases (for premises, vehicles, etc.) will now be on the balance sheet.
Trustees and finance committees must be briefed to ensure oversight and understanding.
Key Challenges in FRS 102 Migration
Organisations may face:
- Data collection hurdles for historical leases and contracts
- Resource constraints in SMEs and charities
- Complex financial instruments or multi-element arrangements
- Training fatigue across finance, IT, and operations
- Misalignment of KPIs and loan covenants
A disciplined project management approach is crucial to navigate these.
How Insights UK Can Help:
Insights UK offers specialized services to assist organizations in navigating these changes, including:
- Financial Reporting Assistance: Guidance on preparing compliant financial statements and reports.
- Policy Development: Support in developing and updating accounting policies in line with current standards.
- Training and Workshops: Educational sessions for staff and trustees on financial compliance and best practices.
- Audit Preparation: Assistance in preparing for audits, including documentation and process reviews.
By leveraging Insights UK’s expertise, organizations can enhance their financial governance and ensure adherence to the updated FRS 102 requirements.
The FRS 102 migration represents not just a compliance exercise but an opportunity to modernise your financial reporting, increase transparency, and improve governance. As deadlines approach, organisations that act early in 2025 will be far better positioned to adapt, educate their teams, and meet regulatory and stakeholder expectations. With expert guidance from partners like Insights UK, the journey to compliance can become a catalyst for better reporting, stronger internal controls, and strategic clarity.