FRS 102 revenue recognition: what architects need to know
For accounting periods beginning on or after 1 January 2026, changes to FRS 102 will significantly change how architectural practices recognise revenue. The revised standard introduces a new five‑step revenue recognition model that is more closely aligned with IFRS.
To learn more about the impact the FRS 102 changes will have, read our previous insight here.
While the underlying aim of the changes is greater consistency and transparency, the changes will require architects to look more closely at how contracts are structured, how services are defined and how fees are recognised over the life of a project.
For many architectural practices, revenue recognition has historically followed a relatively straightforward time‑apportionment or percentage‑of‑completion approach across an entire project. Under the revised FRS 102, this will no longer be appropriate. Instead, revenue must be assessed by reference to distinct services promised to the client and when control of those services transfers.
Understanding contracts – and why they matter more than ever
Firstly, architecture practices should identify whether a contract exists. While architects may begin work based on informal agreements or instructions to proceed, the revised standard places far greater emphasis on enforceable rights and obligations. Where work is undertaken before a formal contract is in place, recognition of revenue may not be allowed until specific criteria are met, in some cases deferring revenue until much later in the project.
This means that practices should review not only whether contracts are signed promptly, but also whether variations, scope changes and additional services are clearly documented. Pre‑contract design work, feasibility studies or early‑stage input that is expected to be rolled into later phases may no longer generate revenue when the work is performed, potentially affecting reported results.
Identifying performance obligations
A key change under the revised FRS 102 is the focus on identifying ‘performance obligations’ – the distinct services set out in the contract which have been promised to the client. Architectural projects are often broken down into RIBA stages, such as strategic definition, concept design and technical design. However, these stages do not automatically equate to separate performance obligations.
Practices will need to assess whether individual stages are capable of being distinct in their own right, or whether several stages combine to deliver a single overall service, such as a completed concept design package. This assessment requires judgement and a detailed understanding of both the contractual terms and how clients benefit from the work performed, therefore taking expert advice is recommended.
This is important because revenue is recognised separately for each performance obligation, rather than across the project as a whole. This may lead to changes in the timing of revenue recognition, particularly where early stages are highly interdependent or where the client only obtains control once a final deliverable is produced.
Rethinking fees and transaction prices
The revised standard also requires practices to consider the total transaction price for a contract, including fixed fees, variable elements such as bonuses/success fees or penalties and any discounts offered for multi‑stage appointments. Variable fees can only be included where it is highly probable that the practice will ultimately be entitled to that amount.
Where a contract includes more than one performance obligation, the transaction price must be allocated between them based on relative stand‑alone selling prices. In some cases, these prices will be observable from past engagements or defined in the contract/agreement with the client. In others, practices will need to estimate them, using reasonable and supportable assumptions. This represents a shift from relying purely on contractual stage fee splits and may require new internal analysis.
When is revenue recognised?
Perhaps the most significant judgement under the revised FRS 102 is determining when revenue should be recognised. For each performance obligation, practices must assess whether revenue is recognised over time or at a point in time, based on various factors including when control of the service transfers to the client and whether the terms of the contract create an enforceable obligation for work completed to date.
In some cases, revenue may be recognised progressively as work is performed. In others, particularly where the client only benefits from the service once a final output is delivered, revenue may only be recognised at completion. This assessment may result in revenue being recognised later than under existing policies, with potential impacts on reported profitability and key performance metrics with consequential impact on EBITDA, employee bonuses, leadership remuneration and any borrowing covenants etc.
What architects should be thinking about now
Architecture practices should start preparing now as these changes will impact upcoming financial reporting for 2026/27. Reviewing standard appointment terms, considering how services are packaged and ensuring contracts clearly describe deliverables will all be critical. Early engagement with advisers can help practices understand where revenue recognition profiles may change and avoid surprises once the new rules come into force.
The revised FRS 102 represents more than a technical accounting update. For architects, it brings contracts, commercial decision‑making and financial reporting closer together than ever before. Thoughtful planning and early action will be essential to navigate the transition successfully and avoid unforeseen spikes and dips in profitability across years.
Contact us
If you need support applying the new framework, we are here to help. Our team of architecture experts deliver tailored support. Early action can help avoid surprises and ensure a smoother transition to the new requirements.
At Moore Kingston Smith, we are already helping clients understand the impact of the revised standard. We are providing clarity and direction by identifying how the changes affect them, highlighting accounting policy choices and advising on disclosure requirements. For many businesses this isn’t just an accounting change, it has real commercial consequences.
With the use of advanced, AI-based technology, we carry out impact assessments and lease contact reviews with detailed analysis.
We also provide strategic advice and tailored training for finance teams covering the impact of the changes on KPI’s and loan covenants, and can advise on communication with lenders or investors regarding lease changes.
To discuss how the changes affect your business, please contact our team who can help to reduce the burden of transitioning to the revised standard.
Contact us for a no-obligation discussion.
