Cornwall firms urged to act on accounting changes few have finished

If your business has a 31 December year end, the first set of accounts under revised UK reporting rules is now less than two months away. And according to one accountancy firm, very few companies have finished getting ready.

A poll run by Azets, a UK top 10 accountancy firm with an office in Truro, found that just under 6% of businesses had completed the implementation of the revised FRS 102 requirements.

What has changed

FRS 102 is the financial reporting standard used in the UK and Republic of Ireland, and it is regulated by the Financial Reporting Council (FRC).

The changes were announced in 2024 and apply to accounting periods beginning on or after 1 January 2026. That means for many businesses in Cornwall, the first year end they apply to is 31 December 2026.

There are two key changes:

• Lease accounting: leases now need to be recognised on a company’s balance sheet.
• Revenue recognition: a new five-step model, which needs to make clear how and when revenue from bundled arrangements in customer contracts is recognised.

The aim is to bring lease and revenue reporting more closely in line with international standards, particularly IFRS 15 and IFRS 16.

What the poll found

The Azets poll followed a webinar on UK financial reporting standards. Asked how far along they were with the revised FRS 102 requirements, respondents said:

• Not started yet: 27.6%
• Assessing the impact: 36.5%
• Currently implementing: just over 22%
• Mostly implemented: 7.6%
• Completed: just under 6%

On confidence about being ready for their next year-end reporting cycle, nearly 54% were fairly confident and 12% were very confident. Nearly 20% were unsure, 12% were slightly concerned and just under 2.5% were very concerned.

Lease accounting was seen as the biggest change. Asked which area of the new UK GAAP (Generally Accepted Accounting Practice) changes would have the greatest impact on their business, 58% said lease accounting, nearly 18% said revenue recognition, nearly 17% said both and 7.6% said neither.

“Not overly complex” but time-consuming

Lewis Aldridge, Partner, Audit & Assurance at Azets, covers Cornwall. He said: “The 6% figure feels low, especially when you consider that 31 December is one of the most common financial year ends and many companies are about to end their first financial year end under the new requirements.

“I would urge local businesses not to underestimate the time it can take to prepare.

“The actual calculations that go into the transition may not be overly complex, but a big part of the exercise is collating all the underlying documentation and ensuring everything has been appropriately considered.”

He said firms with lots of revenue streams, or customers on different terms, could face a big job sorting all of those contracts into categories. Companies with a large lease portfolio, leases with non-simple terms, or no readily obtainable borrowing rate could also find the transition more complicated.

Don’t expect the auditor to do it

Lewis added: “I think a lot of businesses may be delaying the work in the hope that their auditor will pick it up, but in reality, that’s not going to happen because a lot of management judgements have to be made and auditors are simply not in a position to do that.”

A fairer picture, but a big ask for the smallest firms

Lewis said the changes were welcome overall.

“These changes should enhance the clarity and transparency of financial reporting, provide greater visibility over companies’ obligations, and improve comparability between financial statements.

“This will benefit stakeholders, investors and suppliers in that they will be able to get a fairer picture of a company’s commitments and financial position.”

But while he could understand why the changes were needed for medium and large businesses, he said they could feel disproportionate for particularly small businesses facing major upheaval to put them in place.

“In these circumstances, proportionality and materiality must be considered.”