If you’re practicing as an accountant in the UK, you’ve probably heard about the upcoming accounting standards update 2025 uk. It promises to reshape how you handle everything from leases to revenue recognition. With so many changes lined up, you might be wondering, “Do I really need to overhaul my entire approach?” Let’s walk through the main updates so you can feel confident in your next steps.
Understand the 2025 changes
The big headline is that UK GAAP, specifically FRS 102, is changing effective from 1 January 2026. Although it’s often called the 2025 update, that’s really the lead-up year for preparing your practice and your clients. These revisions aim to bring UK standards closer in line with IFRS, especially in areas such as lease accounting and revenue recognition (FinQuery, BDO UK Insights).
Here’s a quick snapshot of what’s coming:
- Convergence with IFRS 16 for lease accounting, requiring most leases on-balance-sheet.
- Alignment with IFRS 15 principles for revenue recognition, moving to a five-step model.
- Updated discount rate options introduced, known as the “obtainable borrowing rate” (OBR).
- Earlier disclosure deadlines if you adopt certain parts of FRS 102 (like supplier finance arrangement disclosures).
If you’re comfortable with international standards, these changes may feel familiar. Still, there are subtle UK-specific nuances that you’ll want to keep in mind.
Focus on lease accounting
If you’ve been using the old distinction between operating and finance leases, this is where you’ll see a big shift. Under the revised FRS 102, nearly all leases (except short-term or low-value ones) appear on your balance sheet as a right-of-use (ROU) asset and a corresponding lease liability (Netgain). This approach is closer to IFRS 16, but there’s a new twist: the OBR, which stands for “obtainable borrowing rate,” can be used to discount your lease liabilities (FinQuery).
What this means for you
- You’ll need to adjust your accounting systems to track all leases in detail.
- Expect more data collection at the outset, especially around discount rates, renewal options, and break clauses.
- Short-term leases (under 12 months) and low-value assets remain off the balance sheet, but be sure to document why they qualify.
By bringing more leases onto the balance sheet, your financial statements might show higher levels of assets and liabilities. This transparency helps investors and other stakeholders see the true cost of leased assets.
How revenue recognition evolves
The changes aren’t limited to lease accounting. FRS 102 includes a major revamp of Section 23, which handles revenue recognition. The new five-step model focuses on transferring control of goods or services to the customer, aligning closely with IFRS 15 (BDO UK Insights). In other words, you’ll determine performance obligations, set the transaction price, and recognise revenue when or as you meet those obligations.
Key revenue changes to note
- You’ll need to identify distinct performance obligations in your contracts.
- Revenue is recognised when control (not just risks and rewards) passes to the customer.
- Variable considerations (like discounts or rebates) get more explicit treatment.
- Revenue disclosures will demand more detail, including judgments about timing and measurement.
If your current policies lean on older concepts (like matching costs to revenues or focusing on risk transfer), it’s time to update them. Clarity in your contract analysis will be crucial.
Effects on key ratios
Putting new leases on the balance sheet and shifting how revenue is recorded won’t just affect your profit-and-loss statement. It can also change your financial ratios:
- EBITDA (earnings before interest, taxes, depreciation and amortisation) often goes up, because lease expense shifts below the EBIT line.
- Debt-to-equity might climb due to newly recognised lease liabilities.
- Cash flow statements could reflect more financing outflows rather than operating outflows, depending on how you classify principal and interest payments (PwC Viewpoint June 2025).
If you have covenants tied to these ratios, now’s the time to speak with lenders or stakeholders. Early engagement helps avoid surprises and shows you’re on top of the new reporting environment.
Steps to prepare
It’s never too early to start planning, especially if you want a smooth transition. Here are a few practical tips to keep in mind:
- Review existing contracts: Identify all leases, including embedded lease elements in service contracts.
- Assess your revenue streams: Break out each performance obligation and confirm how control transfers to customers.
- Adjust systems and software: Ensure you can capture the data needed for discount rates, lease terms, and multiple performance obligations.
- Communicate with stakeholders: Lenders, boards, and investors need to understand how the numbers will change.
- Train your team: Give everyone a refresher on the revised principles for lease and revenue recognition.
Preparing in 2025 gives you a head start on potential system upgrades or additional disclosures. Plus, your team will thank you for avoiding a last-minute scramble.
If you find yourself still uncertain, take comfort in knowing these updates aren’t meant to complicate your life. Instead, they’re designed to make financial statements clearer and more consistent, especially when comparing UK GAAP to IFRS (IFRS Foundation). By planning ahead and staying curious about the finer details, you’ll guide your clients (and your practice) through these changes smoothly.
