FRS 102 changes: What creative, media and technology businesses need to know

The latest amendments to FRS 102 represent the most substantial update to UK financial reporting in recent years. Effective for accounting periods beginning on or after 1 January 2026, the revisions introduce some fundamental changes to accounting, including:

• A new revenue recognition model – Which requires firms to analyse contracts much more carefully and in much more detail and recognise revenue only as specific performance obligations are met 
• A revised lease accounting framework – Which removes the distinction between operating and finance leases, requiring almost all leases to be recognised on the balance sheet

For businesses operating in the Creative, Media and Technology (CMT) sector, these two developments are particularly important. Below we explain why each change matters, what is changing, and how creative, media and technology businesses are specifically affected. For the wider context, see our overview of the changes to FRS 102 and the main FRS 102 hub.

Revenue recognition: A fundamental shift of focus

Why the change matters

The change likely to require the most careful consideration in the CMT sector is the introduction of a new five-step revenue recognition model, drawn from IFRS 15. This is as the sector is characterised by complex contracts, bundled services, intellectual property and subscription models, which could result in material changes in accounting under the new revenue standard.

What is changing

There has been a key shift of focus away from the previous concept of the transfer of ‘risks and rewards’ to a focus on the transfer of control. The five-step model requires companies to rethink  revenue recognition under FRS 102 with respect to each distinct contract offered to customers as follows:

1. Identify the contract with the customer 

2. Identify the distinct performance obligations within that contract 

3. Determine the transaction price 

4. Allocate the transaction price to each performance obligation 

5. Recognise revenue as each obligation is satisfied

How CMT businesses are specifically affected

Companies in the CMT sector frequently enter into contracts that combine multiple deliverables, and therefore potentially multiple distinct performance obligations. Examples include:

• Software licences bundled with maintenance and support 
• Media production contracts covering development, production and distribution 
• Advertising arrangements with performance-based elements 
• Subscription platforms offering tiered services 
• IP licensing agreements with royalty components

Under previous FRS 102 rules, revenue was often recognised based on invoicing milestones or general performance completion with respect to the contract as whole. The revised model requires a much more granular analysis of what distinct goods and services have actually been promised and delivered within a contract.

For example, a technology company providing a fixed term software licence alongside ongoing support may need to separate (or ‘unbundle’) those elements and recognise the revenue from each distinct performance obligation revenue over different timeframes. This could also involve needing to determine separate transaction prices for each contract element for the first time.

Another example is a media company licensing intellectual property with usage-based royalties, where there may be variable consideration. Under the new standard there needs to be a careful assessment as to whether such variable consideration is deemed to be ‘highly probable’ before this can be recognised. This is a much higher barrier to recognition as compared to the previous standard.

For many CMT companies, the result of rethinking about revenue recognition under the new standard may be a significant change in the timing of revenue recognition. In some cases, revenue may be deferred compared to previous practice; in others, it may be accelerated.

It’s equally important to highlight that even if it is determined that there is no change in the accounting for revenue recognition from this change there is still a significant amount of work to be done to be able to reach this conclusion. Including ensuring that this conclusion applies to each and every distinct contract offered to customers.

Lease accounting: Bringing leases onto the balance sheet

Why the change matters

While a potentially less complex area of accounting than the revenue, standard change the requirement for almost all leases to be recognised on the balance sheet, drawn from the accounting approach in IFRS 16, is likely to have a significant impact on most CMT companies. This is because many CMT companies have leased working/creative spaces the expenses for which were previously simply expensed as operating leases through the profit & loss account.

As the key changes detailed below demonstrate this will have a significant impact on the look of many companies’ financial statements. Which in turn could also result in significant changes to key performance indicators that may have a real world impact with stakeholders.

What is changing

Other than for a few exceptions (discussed further below) all leases must be recognised on the balance sheet, in practice this means the following accounting adjustments for each lease in place:

Exceptions to this requirement:

How CMT businesses are specifically affected

CMT businesses often rely heavily on leased assets, including:

• • • Office space and creative studios 
    • Production facilities 
    • Data centres and server infrastructure 
    • Specialist equipment 
    • Broadcasting or transmission facilities

Although capitalising such leases this does not change the underlying economics of the business, it does significantly affect financial reporting and therefore the look of the financial statements. Several key performance indicators will shift:

• • • A substantial increase in the value of total assets and liabilities 
    • Net debt may increase due to recognised lease liabilities 
    • Gearing ratios may rise 
    • Return on assets may change 
    • ‘Front loading’ of lease costs in the earlier years of a lease, reducing profit in earlier years 
    • EBITDA will substantially increase, as lease costs are now captured in depreciation and interest rather than in operating expenses

These changes could have serious implications for banking covenants, earn-out calculations, investor reporting and performance-based remuneration structures. Early engagement with stakeholders impacted by this is crucial. Note too that the revised standard expands FRS 102 operating lease disclosure requirements for any leases that remain off balance sheet under the exceptions, so those arrangements still need to be captured and reported.

What actions need to be taken?

Practical steps that CMT businesses should be undertaking right now include:

• • • Reviewing each distinct contract offered to customers for individual performance obligations, especially where there are bundled services 
    • Considering processes for estimating and revising variable consideration 
    • Compiling a comprehensive lease register 
    • Reviewing banking covenants and incentive arrangements to estimate the potential impact

Common revenue recognition challenges for Creative, Media and Technology businesses

Beyond the structural shift, most creative, media and technology businesses run into the same recurring sticking points when applying FRS 102 revenue recognition. These challenges affect day-to-day judgement as much as year-end reporting, so recognising them early makes the transition far smoother.

Unbundling licences from support and services

CMT contracts rarely map neatly onto a single deliverable. A software licence sold alongside implementation, updates or support has to be split into distinct performance obligations, and deciding where one ends and the next begins directly drives the timing of revenue.

Recognising IP and royalty income at the right point

Licensing intellectual property with usage-based royalties introduces variable consideration. The ‘highly probable’ constraint means a media or technology business cannot simply book the full expected amount upfront. Building a defensible estimate, and revisiting it each period, takes data and documentation many businesses do not currently hold.

Accounting for subscription and tiered platforms

Subscription models with multiple tiers, upgrades and add-ons need each element assessed separately. Getting the allocation of the transaction price wrong across tiers is a common source of misstatement.

Handling performance-based advertising deals

Advertising arrangements with performance-based elements are treated as variable consideration, so expected revenue must be estimated and constrained rather than recognised in full when the contract is signed.

Aligning systems with the new contract asset and liability model

Traditional work-in-progress accounting gives way to contract assets and liabilities. If project tracking, billing and revenue systems do not talk to each other, producing the required figures and disclosures becomes a manual, error-prone exercise.

Related insights

FRS 102 resource hub

FRS 102 revenue recognition for professional services firms

FRS 102 and business borrowing

CMT-sector guidance page

These changes will have a significant impact on many businesses in the CMT sector, but our team at Kreston Reeves is ready to support you through the transition. If you have any questions or would like any assistance, please do get in touch.