23rd October 2026What do the FRS 102 changes mean for retailers?

The UK retail sector has faced no shortage of challenges in recent years. Rising costs, changes in consumer behaviour, supply chain pressures and increasing competition have all forced businesses to adapt quickly. Now, retailers have another significant change to prepare for: the latest amendments to FRS 102.

Effective for accounting periods beginning on or after 1 January 2026, the revised standard introduces major changes to lease accounting and revenue recognition, bringing UK GAAP closer to IFRS. Retailers are likely to feel the impact more than most.

Leases are moving onto the balance sheet

For many retailers, property is one of the biggest operational costs. Whether it is high street stores, shopping centre units, warehouses or distribution hubs, leasing is a fundamental part of the business.

Under the current version of FRS 102, many of these leases are treated as operating leases and remain off the balance sheet. The new rules change that. Most leases will now need to be recognised as both a right-of-use asset and a lease liability.

Likely reporting effects

For businesses with substantial lease portfolios, the effect could be dramatic. While the economics of the business have not changed, the way the business appears to lenders, investors and other stakeholders certainly will.

Rental costs that were previously recognised as operating expenses will be replaced by depreciation and interest charges. As a result, EBITDA will often increase automatically, even though the retailer’s underlying cash flows remain unchanged.

Revenue recognition

While the lease changes have attracted most of the attention, the amendments to revenue recognition should not be overlooked.

The revised standard introduces a five-step revenue recognition model based broadly on IFRS 15:

1. 1. Identify a contract with a customer.
   2. Identify performance obligations within the contract.
   3. Determine the transaction price.
   4. Allocate the transaction price to the performance obligations.
   5. Recognise revenue when or as the entity satisfies the performance obligations.

For businesses selling a straightforward product with an immediate transfer to the customer, the impact may be minimal. However, consideration needs to be given where products are bundled with services or incentives are offered to customers.

Retail arrangements requiring review

Each of these arrangements could require further analysis under the new rules, and revenue must now be assigned to the distinct performance obligations. This may increase both the complexity of accounting processes and the level of scrutiny from auditors.

What retailers should be doing now

To prepare for the FRS102 changes, finance leads should:

1. 1. • Identify and review all lease arrangements.
      • Assess the impact on banking covenants and KPIs.
      • Review loyalty schemes, vouchers and promotional activities.
      • Evaluate whether current systems can support the new requirements.
      • Communicate potential financial statement impacts to key stakeholders.

Our team at HW Fisher is here to help. We can help retailers avoid implementation difficulties, understand how the changes will affect reported performance and communicate clearly with stakeholders.