FRS 102 is the primary financial reporting standard for entities in the UK and the Republic of Ireland that do not apply full IFRS. It offers a simplified framework for preparing financial statements while ensuring transparency and compliance with regulations.
Typically, the top line of the Income statement, few numbers in business are more focused on than Revenue. A measure of size, activity level, growth and a key metric upon which many decisions are made.
Section 23 has been replaced in its entirety with a new Section 23 Revenue from Contracts with Customers (Section 23 Revenue). The amendments to Section 23 Revenue aim to improve comparability between reporting entities, ensuring more useful information is reported about the nature, amount and timing of revenue and cash flows arising from contracts with customers. These changes may impact the timing of revenue recognised by companies.
Section 23 Revenue is based on the requirements of IFRS 15 Revenue from Contracts with Customers (IFRS 15).
Whilst Section 23 Revenue is structured as a series of consecutive steps, the elements are interdependent and generally need to be considered as a whole.
This customer focused approach can result in differences to the previous requirements of FRS 102 and therefore requires careful consideration on transition.
| Previous FRS 102 Section 23 requirements | New FRS 102 Section 23 requirements |
|---|---|
| Used the transfer of risks and rewards approach. | The performance obligation approach focuses on when control is passed to the customer. |
Was largely structured to consider revenue recognition in relation to:
With specific guidance relevant to each. | Changes focus to the Performance obligation and does not necessarily differentiate between Revenue recognised on goods or services. Instead, pivots to providing detailed guidance on when to recognise revenue over time, and when to recognise it at a specific point in time. |
| Not previously specifically dealt with, or dealt with less extensively. | Specific guidance on warranties, non-refundable upfront fees, principal versus agent considerations, customer options for additional goods or services, variable consideration, refund liabilities, repurchase agreements, licensing and contract costs, along with more prescriptive requirements on how the different elements of customer contracts are combined or disaggregated. |
| Less detailed disclosure requirements | More detailed disclosure requirements, which will enhance disclosures around classes of revenue, such as how and when revenue is recognised and details surrounding unsatisfied performance obligations. Where significant judgements have been applied to the recognition of revenue, these are expected to be disclosed, for example, in relation to the identification and satisfaction of performance obligations and the allocation of the transaction price. |
Some entities might find that items they previously recognised as revenue at a single point in time will now need to be recognised over time, or the opposite may be true as well.
The standard includes simplifications when compared to the requirements of IFRS 15, including:
The changes to Section 23 Revenue are applicable for accounting periods beginning on or after 1 January 2026, with early application permitted, provided all other amendments to FRS 102 are applied at the same time.
On first-time application, there is a choice available to apply the amendments using either:
| A modified retrospective approach | A fully retrospective approach |
|---|---|
| Under the modified retrospective approach, the comparative period information is not restated and instead, a cumulative catch-up adjustment is recognised in retained earnings at the date of initial application. | Under the fully retrospective approach, the amendments are applied for prior periods to the earliest date for which it is practicable.
|
Several practical expedients are available under either of these approaches to aid companies on initial application.
Section 23 Revenue applies to all FRS 102 reporters, including those reporting under FRS 102 Section 1A Small Entities. The impact will vary depending on the nature and terms of customer contracts and the current revenue recognition policies adopted.
All FRS 102 reporters will need to assess the impact of the changes, however, the greatest impact is expected to be on those entities with customer contracts that are longer-term in nature and span the reporting period end.
The timing of revenue recognition affects the key metrics of companies, which may have practical implications, such as impacting the timing of tax payable, an entity’s strength in negotiating contracts or the results for profit-related pay.
Industries that reported a high impact on their financial statements on the adoption of IFRS 15, and which may therefore be similarly impacted by the amendments to Section 23 Revenue, include:
Although the amendments do not apply until periods beginning on or after 1 January 2026, companies should use this time to consider the potential impact. Because of the nature of Revenue as key to most organisations, it is important to consider the impact of these accounting changes early. This will help to plan and implement any potential changes to underlying systems and processes early on. Even incremental changes to high volume transactions can add up quickly to a material number.
The complexity of applying a more prescriptive approach, along with more detailed disclosures, may require updates to existing accounting processes. A detailed analysis of the contracts in place should be performed at an early stage in order to ensure smooth implementation.
Our specialist team brings extensive expertise in guiding clients through the adoption of new and revised accounting standards, ensuring a smooth, compliant transition. This includes detailed contract analysis, supporting with measurement differences, preparing and updating accounting policy manuals and preparing additional disclosure notes for the first financial statements to which the revised accounting standards are applied.
The Financial Reporting Council (FRC) has made changes to Section 23 Revenue, as part of its improvements to FRS 102. These changes will take effect for periods starting on or after 1 January 2026.
The Financial Reporting Council (FRC) has issued comprehensive improvements to FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland.
This article, by our Audit and Assurance partner Maurice Hickey, first appeared in the Business Post published on 24 October 2025.
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