UK GAAP Revisions - Revenue and Leases: The Audit Implications You Can’t Afford to Miss
Most firms are already aware that FRS 102 and FRS 105 are changing from 1 January 2026. You’ve heard about the five-step revenue recognition model and the fact that leases will be moving onto the balance sheet. But what we’re seeing in conversations with firms is that while the accounting headlines are sinking in, the audit implications aren’t always getting the airtime they deserve.
So, let’s talk about what this actually means for audit files — because if you leave it until your first 2026 year-end, you’ll be doing it live, under the eyes of your regulator.
Lease Accounting: More Than Just an Extra Balance Sheet Number
For many SMEs, leases are scattered across contracts, emails, and a fair bit of “I think we pay about £X a month.” Under the new model, most leases will need to be capitalised — and that means:
Completeness testing becomes critical. You’ll need to demonstrate how you’ve checked for embedded leases and informal arrangements. A quick glance at rent invoices won’t cut it anymore.
Judgments multiply. Management will have to decide lease terms (including extension options) and discount rates. Those decisions need robust evidence, and your audit file needs to show how you’ve challenged them.
Documentation will be king. The regulator has already been clear that “testing without documenting” doesn’t count. If your work isn’t on file, it didn’t happen.
Bottom line: auditing leases is going to take more than a standard checklist.
Revenue Recognition: A Cultural Shift for UK GAAP
The five-step model aligns UK GAAP more closely with IFRS 15. For many SME audits, this will be the first time revenue recognition moves beyond “invoice = revenue.”
That means:
Performance obligations matter. You’ll need to understand how management has identified them and whether revenue is recognised at a point in time or over time.
Risk assessments will need refreshing. Revenue is already a hot spot for regulators. With new rules, it’s almost certainly going to be a significant risk with little scope for rebuttal in many files.
Discussions need to be captured. Auditors will have to evidence how they’ve talked through contract terms with management — particularly for service-based businesses where timing of recognition can shift profits around.
This isn’t just a technical shift. It’s a shift in how audit teams think and evidence their scepticism.
What Regulators Will Be Looking For
If the QAD’s most recent audit monitoring reports are anything to go by, the spotlight will be on:
How auditors challenge management’s judgments.
The quality of documentation, not just the existence of a conclusion.
Whether audit files actually show a link between risks, procedures, and conclusions.
Add on the new lease and revenue rules, and the pressure on audit evidence is only going to increase.
So What Should Firms Do Now?
You don’t need to overhaul everything today, but you do need a plan. Here are some pragmatic steps:
Run a dry-run. Take one 2025 client and put their leases and revenue contracts through the new rules. Spot the challenges now, not in busy season 2026.
Update templates. Make sure your methodology and working paper packs allow teams to record judgments, not just tick boxes.
Train staff early. Don’t wait until December 2026. Give teams the chance to practice applying the new rules before it’s high-stakes.
Plan the timetable. Stagger your preparation: training this autumn, templates by year-end, dry runs in early 2026. That way you’re ready without firefighting.
Final Thoughts
The 2026 changes to UK GAAP aren’t just an accounting technicality. They’re going to reshape how audit files look — especially around leases and revenue. Firms that start preparing now will not only save themselves last-minute panic but will also show regulators they’ve taken audit quality seriously.
At Apex, we’re already helping firms update methodologies, train staff, and think through the audit implications pragmatically. Our advice? Don’t wait until the changes are “live” — use the time now to build confidence in your teams and robustness into your files.