FRS 102 is the main accounting standard for UK companies and other entities that do not use international standards, FRS 101 or the micro entity standard FRS 105. It is issued by the Financial Reporting Council (FRC), and small companies can apply it with lighter presentation and disclosure through Section 1A. Most of the Periodic Review 2024 changes, including new lease and revenue rules, apply to accounting periods beginning on or after 1 January 2026.

What is FRS 102 and who issues it?

FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland, is published by the FRC. Its overview describes it as a single standard for the financial statements of entities that are not applying adopted IFRS, FRS 101 Reduced Disclosure Framework or FRS 105. Its requirements are based on the IFRS for SMEs Accounting Standard first issued in 2009, but the FRC has modified that standard substantially, both in who can use it and in the accounting treatments it allows.

Paragraph 1.1 says the standard applies to financial statements that are intended to give a true and fair view of an entity’s financial position and profit or loss. Paragraph 1.2 makes clear it is not only for companies: it also applies to public benefit entities such as charities, with paragraphs prefixed PBE applying only to them. Paragraph 1.2A reminds preparers that FRS 102 does not necessarily contain every legal disclosure, so company law still has to be checked alongside it.

Which businesses have to use FRS 102?

Paragraph 1.3 sets out the choice. An entity eligible for FRS 105 may use that standard for its individual accounts. An entity that is not eligible, or is eligible but chooses not to use FRS 105, must prepare its accounts under FRS 102, adopted IFRS or FRS 101. In practice FRS 102 is the default for most UK private companies, limited liability partnerships and charities above micro size.

A company is small under section 382 of the Companies Act 2006 if it meets two or more of these conditions: turnover not more than £15 million, balance sheet total not more than £7.5 million and not more than 50 employees. Those limits apply for financial years beginning on or after 6 April 2025. A small company still uses FRS 102 but may opt into the small entities regime in Section 1A. Companies below the micro entity limits can choose between Section 1A and FRS 105 and the micro entity regime.

How is the standard organised?

FRS 102 is split into 35 numbered sections plus Section 1A and Section 2A, a glossary and appendices. The sections that come up most often in small and medium sized company accounts are:

Section Subject
1A Small Entities (presentation and disclosure for the small entities regime)
3 Financial Statement Presentation, including going concern
11 and 12 Basic and other financial instruments
13 Inventories
16 and 17 Investment Property; Property, Plant and Equipment
18 and 19 Intangible assets; Business Combinations and Goodwill
20 Leases
23 Revenue from Contracts with Customers
29 Income Tax (current and deferred tax)
32 Events after the End of the Reporting Period

What does Section 1A change for small companies?

Section 1A changes presentation and disclosure, not measurement. Paragraph 1A.1 states that, unless excluded, all of the requirements of FRS 102 apply to a small entity, including the recognition and measurement requirements. So a small company still depreciates assets, accounts for leases, recognises deferred tax and measures financial instruments in the same way as a larger company.

What Section 1A removes is much of the statement and note burden. Under paragraph 1A.7A a small entity does not have to comply with Sections 4 to 7, which means no full statement of cash flows. Paragraph 1A.8 says the complete set is a statement of financial position, an income statement and notes. Paragraph 1A.6A requires a statement on the balance sheet, above the signature, that the accounts are prepared under the provisions applicable to companies subject to the small companies regime.

Two points are often missed. First, paragraph 1A.6 says a small entity may need to give extra disclosures so that the accounts give a true and fair view. Second, paragraph 1AC.2C now requires small entities to give the going concern disclosures in paragraphs 3.8A and 3.9, for periods beginning on or after 1 January 2026. The going concern assessment page explains what those disclosures involve.

What accounting choices does FRS 102 allow?

FRS 102 is more flexible than FRS 105. The main policy choices and requirements a reader of small company accounts will meet are:

  • Revaluation of fixed assets. Paragraph 17.15 allows the cost model or the revaluation model for property, plant and equipment, but a revaluation policy must cover the whole class of asset.
  • Investment property. Paragraph 16.7 requires investment property to be measured at fair value at each reporting date, with changes going through profit or loss.
  • Borrowing costs. Paragraph 25.2 allows a policy of capitalising borrowing costs directly attributable to a qualifying asset, applied consistently to a class of assets.
  • Development costs. Paragraph 18.8H allows an intangible asset to be recognised from development spending only if every listed condition, such as technical feasibility and intention to complete, can be demonstrated.
  • Intangibles and goodwill. Paragraph 18.19 treats all intangible assets as having a finite life. If a reliable estimate cannot be made, paragraphs 18.20 and 19.23 cap the life at 10 years.
  • Deferred tax. Paragraph 29.6 requires deferred tax on all timing differences, subject to specified exceptions.

How fixed assets are written off under these rules is covered in depreciation methods and how they work.

What changed from 1 January 2026?

The FRC issued the Periodic Review 2024 amendments on 27 March 2024. Most are effective for periods beginning on or after 1 January 2026, with early adoption permitted. The headline changes are:

  • Leases (Section 20). The distinction between operating and finance leases is removed for lessees, so more leases come onto the balance sheet as an asset and a liability. Short term leases and leases of low value assets can stay off balance sheet.
  • Revenue (Section 23). A single five step model applies to all contracts with customers, based on identifying the distinct goods or services promised and the consideration the entity expects to be entitled to.
  • Section 1A. More clarity on which disclosures are expected to be necessary for a true and fair view.

The review did not introduce an expected credit loss model for impairing financial assets. Further amendments published on 18 February 2026, which mainly concern adapted balance sheet and profit and loss formats and follow the replacement of IAS 1 by IFRS 18, take effect from 1 January 2027.

Illustration only. A small company rents its office on a five year lease at £12,000 a year. Before 2026 this was usually an operating lease, with £12,000 charged as rent each year and nothing on the balance sheet. From its first period beginning on or after 1 January 2026 the company recognises a right of use asset and a lease liability, then charges depreciation on the asset and interest on the liability instead of rent. Profit over the whole lease is broadly the same, but the timing and the balance sheet look different, which can affect loan covenants.

How does FRS 102 compare with FRS 105?

Point FRS 102 (including Section 1A) FRS 105
Fixed asset revaluation Allowed by class Not allowed; cost only
Investment property Fair value through profit or loss Cost less depreciation
Deferred tax Recognised Not recognised
Lessee accounting from 2026 Most leases on balance sheet No equivalent change
Notes Section 1A notes plus anything needed for a true and fair view Short statutory notes at the foot of the balance sheet

Does FRS 102 decide how much tax a company pays?

Not directly. Accounts profit is the starting point for Corporation Tax, but the tax computation then adjusts it. HMRC’s Business Income Manual at BIM35201 states that depreciation is not an allowable deduction in computing trade profits, so it is added back and capital allowances are claimed instead. By contrast, HMRC’s Corporate Intangibles Research and Development Manual at CIRD10115 explains that the corporate intangibles regime links the tax treatment to the company’s accounts, so FRS 102 amortisation of intangibles usually flows through to the tax computation as well.

What mistakes come up most with FRS 102?

  • Assuming Section 1A changes measurement. It does not; only presentation and disclosure are reduced.
  • Rolling forward old lease notes after 1 January 2026 instead of bringing leases onto the balance sheet.
  • Leaving out the going concern statement now required of small entities by paragraph 1AC.2C.
  • Revaluing one property but not the rest of the same class.
  • Forgetting deferred tax on timing differences such as accelerated capital allowances.
  • Treating disclosure as optional when it is needed for a true and fair view under paragraph 1A.6.

For what then gets sent to the registrar, see small company accounts: what to file at Companies House. Where accounts are prepared on the cash basis for an unincorporated business, see cash basis versus accruals accounting.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.