Reminder: FRS 102 for SaaS businesses
The revised FRS 102 is now in force for accounting periods beginning on or after 1 January 2026. For most SaaS businesses, the first point at which FRS 102 changes will be felt is in the January 2026 management accounts. These monthly reports will need to reflect the revised revenue recognition and lease accounting rules, well ahead of the first statutory reporting cycle. This work should be prioritised immediately for any business with bank loan covenants or other financing arrangements, as early clarity on the revised numbers is essential for ongoing compliance.
SaaS businesses will see the biggest shifts coming from updated revenue recognition and lease accounting rules: changes that will directly influence how operations, financial performance and disclosures are understood. These updates will also start shaping how performance, growth and financial position appear in current investor and board reporting.
Here we provide a brief recap to help SaaS businesses ensure they are fully prepared.
Revenue recognition
FRS 102 introduces a five-step revenue recognition model, aligned broadly with IFRS 15.
Why this matters matters for SaaS
- SaaS contracts often bundle multiple components: subscriptions, licences, set up/implementation, support, upgrades, usage based fees.
- Revenue may need to be allocated across the different components (described as performance obligations in the standard) and recognised over time or at a point in time.
- Changes may affect revenue timing, deferred income, MRR, ARR and investor KPIs.
What you need to do
- Review standard customer contracts and commercial terms.
- Identify distinct performance obligations.
- Assess variable consideration (usage fees, discounts, credits).
- Update revenue recognition policies and documentation.
- Quantify the impact on deferred revenue, comparatives, and key metrics.
Lease accounting (on-balance sheet leases)
Most leases must now be recognised on the balance sheet as:
- Right-of-use (ROU) assets
- Lease liabilities
Why this matters
- Office space, data centres, servers, hardware, vehicles and embedded leases in supplier contracts may all be in scope.
- Both assets and liabilities will increase; EBITDA typically increases while net debt also rises.
What you need to do
- Build a complete lease register (including embedded leases in supplier contracts) to ensure your lease register is complete.
- Confirm lease terms, discount rates and payment schedules.
- Calculate ROU assets and lease liabilities.
- Assess impacts on debt covenants, forecasts and investor reporting.
KPI and metric impacts
The new standards can materially change how core SaaS metrics are presented though the extent will depend on the terms of key contracts (including those with customers).
Example:
• Before: £120,000 revenue recognised this month (including £60,000 annual billing recognised upfront).
• After: £70,000 revenue recognised (annual subscriptions spread over contract term).
What changed?
• Revenue now reflects service delivery, not invoice timing.
• MRR may reduce (e.g., £10,000 old MRR vs £7,000 new MRR), depending on contract structure.
Why this matters
• It affects valuation narratives, lender confidence and buyer due diligence.
• Business performance might be stable but the numbers will tell a different story.
Board, investor and lender reporting
What you need to do
• Update board packs to reflect revised EBITDA, net debt and revenue timing.
• Prepare clear narrative explanations for period on period changes.
• Communicate early with investors, lenders and acquirers.
Early adoption considerations
Early adoption is permitted and may be beneficial to some businesses.
Considerations
• Assess whether early adoption improves EBITDA, valuations or covenant ratios.
• Document rationale for early adoption and communicate across stakeholders.
Need support with FRS 102 for your SaaS business?
Moore Kingston Smith’s technology team is working closely with SaaS and tech enabled businesses navigating the revised FRS 102. If you have any questions or need tailored guidance, get in touch with our specialists today.
