2025 accounting roundup

As 2025 draws to a close, 2026 looks to be another busy year in the world of accountancy and tax with various changes being implemented and updates to regulation and legislation beginning to take effect.

Periodic review amendments

As has been widely publicised, the Financial Reporting Council (FRC) issued its periodic review amendments to UK and Ireland accounting standards on 27 March 2024. These amendments take mandatory effect for accounting periods commencing on or after 1 January 2026. Hence, December 2026 year ends and short periods are those that will be mandatorily affected first. Early adoption is, of course, permissible provided all the periodic review amendments are applied at the same time.

The two ‘headline’ changes relate to on-balance sheet lease accounting (FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland only); and the five-step revenue recognition model in both FRS 102 and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.

Much has been published about the technical impacts of the on-balance sheet lease accounting treatments and five-step revenue model, including from professional bodies. A couple of the ‘key’ issues to keep in mind are that:

• There is no restatement of comparative information for the new lease accounting rules (i.e. no prior year adjustment). The entity recognises the cumulative effect of applying the new treatments as an adjustment to the opening balance on retained earnings, or other component of equity, at the date of initial application (FRS 102 (September 2024), para 1.47).
• The interest rate implicit in the lease is not used when discounting the lease liability to present value at the date of initial application. For leases that were previously classified as an operating lease, the entity uses the lessee’s incremental borrowing rate or the lessee’s obtainable borrowing rate (FRS 102, para 1.51(a)).
• The new revenue recognition requirements may result in different revenue profiles than is currently the case. Keep in mind that there are new prescriptive requirements in FRS 102 (September 2024), Section 23 Revenue from Contracts with Customers for transactions involving (among other things) non-refundable upfront fees and income arising from licensing and royalties.

Small entities in the UK will be required to make additional mandatory disclosures in their financial statements. This follows the FRC’s amendments to FRS 102, Section 1A Small Entities, Appendix C Disclosure requirements for small entities in the UK. In addition to company law requirements, there are additional disclosures required in respect of:

• Leasing arrangements
• Provisions and contingencies
• Revenue recognition
• Share-based payment arrangements
• Taxation (current and deferred)

It should also be noted that the encouraged disclosures in FRS 102, Section 1A, Appendix E Additional disclosures encouraged for small entities have been moved into Appendix C. Hence, under FRS 102 (September 2024), Section 1A, Appendix E is only relevant to small entities in the Republic of Ireland (and the title of that section in the 2024 edition of FRS 102 has been changed to reflect this). For clarity, these additional five disclosures are:

• A statement of compliance with FRS 102 (adapted to refer to Section 1A);
• A statement that the entity is a public benefit entity;
• Disclosures relating to material uncertainties related to going concern;
• Dividends declared and paid or payable; and
• Transitional information on first-time adoption of FRS 102.

As FRS 102 (September 2024), Section 1A, Appendix C mandates certain disclosures beyond those required by company law, para 1AC.1 has been amended to clarify that a small entity need not provide a specific disclosure set out in Appendix C if the information resulting from that disclosure is not material. The exception to this requirement would be where the disclosure is required by company law (if it is required by law, it must be made regardless of materiality).

Preparers of small entity financial statements in the UK should also be aware that under FRS 102 (September 2024), Section 1A, there are extended related party disclosure requirements.

FRS 101 update

On 1 October 2025, the FRC issued FRED 88 FRS 101 Reduced Disclosure Framework – 2025/26 cycle. Comments on FRED 88 are open until 16 January 2026.

FRED 88 proposes no changes to FRS 101.

This standard was last updated in May 2025 as part of the 2024/25 cycle of amendments. The FRC amended FRS 101 for the effects of IFRS® 18 Presentation and Disclosure in Financial Statements. IFRS 18 will replace IAS® 1 Presentation of Financial Statements for annual reporting periods commencing on or after 1 January 2027.

In addition, the FRC also amended FRS 101 in respect of IFRS 19 Subsidiaries without Public Accountability. As with IFRS 18, this was another new IFRS Accounting Standard issued by the IASB® which becomes effective for accounting periods commencing on or after 1 January 2027.

The amendments to FRS 101 prohibit a reporting entity from applying both IFRS 19 and FRS 101. This was a sensible amendment because it would make no sense for an entity to apply both standards.

Both IFRS 18 and IFRS 19 will need to be endorsed for use in the UK by the UK Endorsement Board. The consultation for endorsing IFRS 18 for use in the UK closed on 7 October 2025. The consultation for endorsing IFRS 19 for use in the UK closes on 26 February 2026.

Changes to company and group size thresholds

For accounting years commencing on or after 6 April 2025, the thresholds that define the size of a company or group were increased by some 50% as follows:

Many companies classed as medium-sized under the previous thresholds may be able to move down to the small category. This will potentially enable them to apply a less rigorous financial reporting regime (e.g. the presentation and disclosure requirements of FRS 102, Section 1A if they wish). The government estimates that this will save companies more than £240 million per year. It is expected that most newly small companies will choose to adopt a less rigorous reporting regime, provided there is no objection to doing this from stakeholders, such as banks or shareholders.

The other potential saving will come in the form of audit exemption. Companies that are reclassified as small may be able to claim audit exemption. The audit exemption thresholds are directly linked to the small companies’ thresholds, hence any increase in the small company thresholds means that the audit exemption thresholds automatically increase at the same time.

Not all companies that are reclassified as small will be able to claim audit exemption, but most will. It is also expected that the number of audit-registered accountancy firms will see a further decline in 2026.

Small companies claiming audit exemption are already required to make a statement on the face of the balance sheet that the members have not required the company to obtain an audit of its financial statements in accordance with section 476 of Companies Act 2006.

The Economic Crime and Corporate Transparency Act (ECCTA) will require an additional statement to be made by the directors. The ECCTA requires the directors to specify which exemption is being claimed, and they will need to confirm that the company qualifies for the exemption. At the time of writing, it was uncertain when this would become effective from as secondary legislation is still awaited to enact this area of the ECCTA.

We are expecting further Statutory Instruments to be finalised in 2026 which will enact the various measures in the ECCTA that are yet to be implemented.

Updates to SORPs

As noted in a previous article, the Charities’ SORP and the LLPs SORP have both been updated to reflect the FRC’s periodic review changes. In addition, some SORP-making bodies have made further amendments to reflect feedback received during the consultation stages.

Other SORP-making bodies, such as the Pensions Research Accountants Group, have updated their SORPs. The Housing SORP 2026 is currently under a public consultation which closes on 12 January 2026. A final version of the Housing SORP is anticipated for publication at the end of March 2026.

Category: Accounting and standards