If you run a business that delivers work over months rather than moments — construction, engineering, professional services, software builds, manufacturing to order — the way you recognise revenue is changing, and the clock has already started.
The 2026 periodic review of FRS 102 takes effect for accounting periods beginning on or after 1 January 2026. For a December year-end, that means the first affected accounts are the ones you are steering right now. This is not a “next year” problem. It is a this-year problem that lands in next year’s numbers.
What is actually changing
The old Section 23 gave you a fairly loose framework: recognise revenue by reference to the stage of completion, and get on with it. The revised standard replaces that with a five-step model lifted, in substance, from IFRS 15 — the same logic listed companies have wrestled with since 2018.
The five steps:
- Identify the contract with the customer.
- Identify the performance obligations within it.
- Determine the transaction price.
- Allocate that price across the obligations.
- Recognise revenue as each obligation is satisfied.
On paper that reads like a tidying-up exercise. In practice, for long-term contracts, it changes the shape of your reported revenue — and potentially its timing.
The “over time versus point in time” question
This is the one that bites. Under the new model you can only recognise revenue over time — the percentage-of-completion approach most contractors rely on — if you can demonstrate one of three things: the customer controls the asset as you build it; the customer receives and consumes the benefit as you perform; or you have no alternative use for the asset and an enforceable right to payment for work done to date.
Fail all three, and you recognise revenue at a single point in time — on handover. For a business used to booking revenue steadily across a two-year build, flipping to point-in-time recognition is not a cosmetic change. It reshapes your top line, your margins by period, and quite possibly your covenant headroom.
Unbundling the contract
The second sharp edge is performance obligations. The default is no longer “one contract, one revenue stream.” You have to break the contract into its distinct promises — the build, the commissioning, the maintenance, the training — and account for each separately, allocating the price across them.
If your contracts bundle several deliverables under one number, this is where the real work sits. It is also where the judgement — and the audit scrutiny — will concentrate.
Variable consideration, and why it is no longer an afterthought
Long-term contracts are riddled with variables: performance bonuses, liquidated-damages clauses, claims, volume rebates, milestone incentives. The revised standard makes you estimate and constrain these explicitly, rather than waiting for certainty. That pulls judgement forward and demands documentation you may not currently produce.
Costs to obtain and fulfil the contract
There is a new accounting policy choice on the horizon too: whether to capitalise the incremental costs of winning a contract — sales commissions being the obvious one — or expense them as incurred. Certain costs to fulfil a contract also come into sharper focus for capitalisation. Choose deliberately, apply it consistently, and make sure your finance team knows which way you have jumped before the first invoice goes out.
The transition — and the bit people miss
You do not restate your comparatives. The standard uses a modified retrospective approach: a single cumulative adjustment to opening retained earnings in the first period of application. Clean in theory. But it means the difference between old and new treatment lands in one lump in equity — and anyone reading a two-year comparison will see a discontinuity they will want explained.
Early adoption is permitted, but only if you apply all the periodic-review changes together — you cannot cherry-pick revenue and leave the lease changes for later.
Why a CFO should care beyond the accounts
Here is the part that gets lost in the technical write-ups. This is not just an accounting-policy exercise for your reporting team to absorb quietly. It touches:
- Bank covenants — if revenue timing shifts, so do your ratios. Talk to your lender before the numbers move, not after.
- Earn-outs and management incentives — if bonuses hinge on reported revenue or profit, the goalposts may have quietly moved.
- Tax — the accounting profit is the starting point for your corporation tax computation. A change in when revenue is recognised is a change in when it is taxed. There are transitional rules to navigate, and getting the cumulative adjustment wrong has a cash-tax consequence.
- Deal readiness — if you are heading towards a sale or raise, a buyer’s diligence team will expect clean, defensible revenue recognition under the new standard. Messy transition working papers are exactly the kind of thing that knocks value off a deal.
What to do now
Three moves, in order:
- Map your contract book against the five-step model. Which contracts flip from over-time to point-in-time? That is your priority list.
- Model the equity adjustment and the ratio impact. Do it before the year-end, not at audit. Surprises in the covenant conversation are the expensive kind.
- Decide your policy choices deliberately — over-time criteria, cost capitalisation, early adoption — and document the judgement. The judgement is the compliance now.
This is a change that rewards businesses that get ahead of it and punishes those who treat it as a year-end tidy-up. The standard has moved FRS 102 a long way towards the discipline of IFRS 15 — which means more judgement, more documentation, and materially less room to wave things through.
If long-term contracts are core to how you earn, this is worth an afternoon of your CFO’s time now, not a scramble at audit.
If you would like a second pair of eyes on how the 2026 FRS 102 changes hit your specific contract book, covenants or tax position, get in touch.