How Irish SMEs can prepare for FRS 102 accounting changes

While these updates are accounting-driven, the impact will be commercial affecting reported profit, EBITDA, leverage, disclosures and potentially audit requirements.

For many SMEs, this is the biggest shift in their accounting framework in over a decade.

What’s changing?

1. Leases will move onto the balance sheet
Most operating leases – such as property, vehicles and equipment – will now create both an asset and a liability. This may increase reported debt and total assets and change how lease costs appear in the profit and loss account.

2. Revenue may be recognised differently
Companies will need to align revenue recognition to performance obligations within contracts. For some SMEs, this may accelerate or defer revenue compared with current practice.

Further details on the changes are covered in our dedicated articles:

• FRS 102 – 2026 Accounting changes to leases
• FRS 102 – 2026 Changes to the accounting for Revenue

How could this affect SMEs in practice?

Balance sheets may grow

Higher reported assets and liabilities could:

• Push some companies over audit or size thresholds.
• Remove eligibility for FRS 102 1A – Small Entities.
• Affect gearing ratios and net debt metrics.

EBITDA and profit could shift

• Lease costs will move from operating expenses to depreciation and interest.
• Revenue timing changes may alter gross profit and year-end results. These shifts could influence bonus schemes, valuation discussions or investor expectations. 

Banking and funding relationships may be impacted

• Higher reported debt may affect covenant calculations.
• Banks may request explanations, revised forecasts or updated agreements.
• Grant or investment reporting criteria could also be affected.

Dividend and tax planning could change

• If distributable profits change due to timing adjustments, dividend policy may need to be reviewed.

Systems, contracts and processes may need updates

SMEs with multiple leases or complex customer contracts may need:

• New / Revised accounting policies, processes, procedures and controls.
• Better data capture.
• Contract reviews.
• Updated forecasting models.

SMEs the changes are most relevant to

Those who:

• Have material property, vehicle or equipment leases.
• Operate long-term, milestone or bundled contracts.
• Are close to audit size thresholds.
• Rely on bank funding or covenants.

What should SMEs do?

1. Assess the impact

• Identify leases and key revenue contracts.
• Model impact on balance sheet, profit and EBITDA.
• Check size thresholds and audit implications.

2. Engage stakeholders early

• Share preliminary findings with directors, shareholders, lenders and tax advisers.
• Discuss any covenant or dividend implications.

3. Update budgeting and forecasts

• Reflect new expense profiles and revenue timing.

4. Plan for disclosure and system needs

• SMEs may need more data and clearer supporting records.

Why early preparation helps 

Waiting until the end of 2026 may result in:

• Difficult conversations with funders or shareholders.
• Unexpected covenant breaches.
• Delayed accounts.

Early impact assessment reduces surprises and supports stronger decision-making.

How we can help

We can support SMEs with:

• An initial impact review.
• Threshold and audit assessments.
• Covenant and stakeholder communication planning.
• Revenue and lease accounting implementation.