The new changes to FRS 102 are in full force for accounting periods beginning on or after 1 January 2026.

These changes will affect how your financial performance appears on paper and this is a crucial consideration for lenders and stakeholders who are assessing your business.

Businesses need to understand how the changes to revenue recognition and lease accounting impact their finances so that their lending strategy can remain robust.

What has changed under the new FRS 102 rules?

The new FRS 102 rules introduced changes to how businesses report revenue and leases.

Revenue recognition now follows a detailed five-step model, which may change the timing of when income and profit are recorded.

The model is based on when control of goods or services passes to the customer and increases the analysis and documentation needed for complex contracts.

Lease accounting has also changed and most leases will now need to recognise right-of-use assets and lease liabilities on the balance sheet.

This will affect how leases are treated in your financial statements and impact your financial metrics, including EBITDA.

How will the FRS 102 changes affect lenders?

The FRS 102 changes can affect your financial statements and the perception of your financial health, which is particularly important for lenders, investors and other stakeholders.

Businesses will need to reassess their contracts, leases and reporting processes to ensure they are remaining compliant and maintaining financial transparency with all parties.

Your financial ratios may look different and you may see:

  • Higher reported EBITDA
  • Increased net debt and leverage
  • Changes to interest cover ratios
  • Reduced capital ratios

For businesses with covenant-based borrowing, this could create technical breaches even if your operational performance is stable.

How will the FRS 102 changes affect covenants?

Lease liabilities may push leverage above agreed thresholds and revenue timing changes could impact EBITDA-linked covenants.

Some loan agreements include frozen GAAP clauses and allow covenants to be calculated under previous accounting standards.

While lease adjustments may be easier to reverse out, revenue recognition changes are often more complex to isolate.

What should you do now?

Companies need to be proactive, as waiting to assess how the rules affect them could create unnecessary tension with lenders.

With the changes in effect, you should:

  • Model the impact – Assess how FRS 102 changes affect profit and loss, balance sheet and financial ratios such as EBITDA and net debt.
  • Check covenant compliance – Recalculate financial covenants under the new standards to spot any potential breaches before they occur.
  • Review loan agreements – Look for frozen GAAP clauses or other provisions that could affect how covenants are calculated.
  • Engage with lenders early – Discuss potential covenant impacts and show that changes are accounting-driven.
  • Discuss with auditors – Involve auditors early to confirm interpretations, ensure correct disclosures and validate assumptions.
  • Update internal controls – Make sure reporting systems show the new lease and revenue recognition requirements accurately.
  • Communicate transparently – Provide lenders with clear explanations and support models to show that your business remains financially stable.

How can we support you with the FRS 102 changes?

The amended FRS 102 requirements can be technical and robust modelling and contract analysis requires time and expertise.

Our professional financial advisers can help you assess the impact on EBITDA, net debts and covenants and prepare your finances for lenders.

We can also help implement lease accounting models and ensure your financial statements include the correct disclosures.

For expert financial advice and support on the new FRS 102 rules, contact our team today.