UK GAAP is changing, and larger charitable organisations will need to take note of the amendments to the rules this year.
The Financial Reporting Council (FRC) has released its latest updates to FRS 102, with the revised standard becoming mandatory for accounting periods beginning on or after 1 January 2026.
While this may seem a while away, early planning will be key for charities navigating regulatory requirements, funding arrangements, and board reporting.
Why it matters for your charity
The changes are designed to align UK accounting standards more closely with international ones.
While that brings consistency, it also introduces complexity, particularly in two key areas: lease accounting and revenue recognition.
Both could significantly impact your charity’s balance sheet, income profile, and how you communicate your finances to trustees, funders and regulators.
What’s changing?
Here are the key changes that are coming soon:
- Leases: Most leases will now appear ‘on balance sheet’. This means leased property or equipment (previously treated as off-balance sheet operating leases) will now need to be recognised as a ‘right-of-use asset’ and a corresponding liability. For charities with leased premises, vehicles, or major items of equipment, this could create a visible shift in financial position and key ratios.
- Revenue recognition: Revenue must now be recognised using a five-step model aligned with IFRS 15. For charities, this may affect when you can recognise grant income, contract income or donations with performance obligations. Careful analysis will be needed to assess how income is phased, especially where delivery milestones or service outcomes are involved.
Beyond these two key changes, there are further amendments that may impact the way that charities report their finances, including:
- A new definition of fair value and updated measurement guidance
- Clarifications around employee-related costs in business combinations
- Guidance on software capitalisation
- Enhanced guidance on accounting estimates and policy disclosures
- More clarity on required disclosures under Section 1A for smaller charities
What should charities do next?
Given the changes that lay ahead, we recommend that charities explore the following steps:
- Assess the impact on lease and income recognition: Review key leases and income streams, particularly funding contracts and restricted grants.
- Review internal systems and data: Consider if your accounting systems can support the additional disclosures and recognition models required.
- Update funder and trustee communications: Be prepared to explain changes to reported results and reserves, particularly if covenant or funding agreements may be affected.
- Start conversations now: From budgeting to reserves policies, early conversations with your board, finance team and auditors will help ensure a smooth transition.
As specialists in charity accounting, we are here to support you through these changes with practical advice tailored to your organisation’s needs.
Please get in touch if you would like to arrange a briefing for your trustees or finance team.