Key Accounting and Audit Updates from the IOMSCA – John Selwood Audit and Accounting Update
Recent updates to FRS 102 will bring important changes for small company accounts prepared for periods beginning on or after 1 January 2026.
Following attendance at the IOMSCA – John Selwood Audit and Accounting Update, we’ve summarised the key developments that businesses and advisers should be aware of. While the changes are not designed to significantly increase complexity, they do place greater emphasis on disclosure, judgement, and transparency.
Increased disclosure requirements for small companies
Small entities preparing accounts under FRS 102 will be required to include more detailed disclosures than previously. Particular attention should be given to:
- Leasing arrangements
- Revenue recognition
- Provisions and contingent liabilities
- Current and deferred taxation
- Share‑based payments
- Related party transactions
- Going concern assessments
In addition, disclosures that were previously described as “encouraged” under FRS 102 will now become mandatory, including:
- A formal statement of compliance with FRS 102
- Disclosure of public benefit entity (PBE) status, where applicable
- Clear going concern disclosures, including any material uncertainties
- Disclosure of dividends
This reflects a continued move towards clearer, more entity‑specific reporting, even for small companies.
Changes to lease accounting under FRS 102
One of the most significant areas of change covered in the update relates to lease accounting.
For accounting periods beginning on or after 1 January 2026:
- The distinction between operating leases and finance leases for lessees will be removed under FRS 102.
- All leases will be recognised on the balance sheet, except for:
- short‑term leases (less than 12 months), and
- leases of low‑value assets.
- The changes will primarily impact lessees, with limited changes expected for lessors.
It is worth noting that FRS 105 will continue to apply the existing approach, whereby operating leases remain off balance sheet.
Transition to the new lease requirements
When transitioning to the new lease accounting model:
- Comparative figures are not restated.
- The cumulative impact of adopting the new standard is recognised by adjusting opening retained earnings at the date of initial application.
For example, for a company with a 31 December 2026 year end, the date of initial application would be 1 January 2026.
Dilapidations and restoration provisions
Where a lease creates obligations for restoration or dilapidations:
- These should be recognised as provisions.
- The expected costs should be capitalised as part of the right‑of‑use (ROU) asset and reassessed as estimates change.
Revenue recognition for contractors
The update also reinforced the importance of the five‑step revenue recognition model, particularly for contractors and long‑term contracts.
Revenue should be recognised as performance obligations are satisfied, using either:
- Input methods – for example, recognising revenue based on costs incurred to date compared with total expected costs at completion; or
- Output methods – for example, recognising revenue based on independent valuations (such as surveyor assessments) of work completed to date.
Selecting the appropriate method requires professional judgement and should reflect how value is transferred to the customer.
Final thoughts
Overall, the IOMSCA – John Selwood Audit and Accounting Update highlighted that good financial reporting is not simply about technical compliance. The forthcoming changes to FRS 102 will require greater professional judgement, clearer entity‑specific disclosures, and early planning – particularly around leases and revenue recognition.
If you would like to discuss how these changes may affect your business or upcoming accounts, please contact our team.
