The FRS 102 rules are changing again: What does this mean for legal firms?

FRS 102 has already undergone changes this year, but it seems the rules are switching up once again.

The revised version of FRS 102 introduced new reforms on revenue recognition and lease accounting for accounting periods after 1 January 2026.

However, the Financial Reporting Council (FRC) has now announced further amendments to FRS 102 and FRS 105 and this will affect how certain firms present their financial statements.

With the reforms rolling out across 2026 and 2027, firms must understand how their reported profits, balance sheets and stakeholder confidence could be affected.

What FRS 102 changes came into effect in 2026?

Revenue recognition

Since January 2026, revenue has been recognised when control of services transfers to the client, rather than when risks and rewards pass.

The revised FRS 102 now follows a five-step model for revenue recognition:

Identify the contract
Identify performance obligations
Set out the transaction price
Allocate the price
Recognise revenue as obligations are satisfied

This will particularly affect legal firms’ contingent or success-based fees, bundled services across practice areas and contracts with variable consideration.

Lease accounting

From 1 January 2026, most leases must now be recognised on the balance sheet through a right-of-use (ROU) asset and a corresponding lease liability.

Instead of recording a single rental expense, firms will report a depreciation of the ROU asset and interest expense on the lease liability.

For law firms, these changes mean:

Higher reported debt levels – potentially affecting bank covenants
Increased EBITDA – as lease expenses are replaced with depreciation and interest
Impact on partner profit-sharing models
Potential covenant breaches if unplanned

What are the new FRS 102 changes for 2027?

For accounting periods on or after 1 January 2027, the new amendments will affect how balance sheets and profit and loss accounts are presented.

The updates follow the introduction of IRS 18, which replaces IAS 1 on the presentation of financial statements.

However, the FRC has chosen not to adopt the full IRFS 18 category structure after stakeholder feedback.

Instead, the changes are:

Revised presentation requirements for businesses applying adapted balance sheet and profit and loss formats
Moving presentation requirements into new appendices within Sections 4 and 5
Updated definitions of current assets, non-current assets and current liabilities, plus additional application guidance

What should legal firms be doing now?

Legal firms that are affected by the recent and upcoming FRS 102 rules must ensure they are staying compliant.

They should be: