FRS 102 vs US GAAP: Key Differences After the 2026 Amendments
October 30, 2026
FRS 102 and US GAAP differ most in revenue, leases, income tax, credit losses on receivables, software and development costs, goodwill, share-based payment and the way the income statement is presented. The FRS 102 amendments that apply to periods beginning on or after 1 January 2026 moved revenue and leases closer to IFRS 15 and IFRS 16, not to US GAAP, so both still need adjusting in a conversion. Your pre-2026 comparatives may need more work again, because they can still follow the old FRS 102 models.
In my experience, revenue and deferred tax come up on every FRS 102 to US GAAP conversion, and leases and credit losses on almost every one. The table below goes area by area: what FRS 102 does, what US GAAP does and what you would need to quantify. If you want the conversion process rather than the differences, see my seven-step guide to converting FRS 102 to US GAAP.
Key takeaways
- The 2026 FRS 102 changes align revenue and leases with IFRS. They do not remove the revenue and lease adjustments in a US GAAP conversion.
- Under amended FRS 102 a lease cost is split into depreciation and interest. Under US GAAP most office and vehicle leases are operating leases with one straight-line cost in operating expenses, so EBITDA differs between the two sets of numbers.
- US GAAP has no low-value lease exemption, and it requires an expected credit loss allowance on trade receivables from the day they are recognised.
- Deferred tax is recalculated on a balance sheet basis at enacted rates, including the tax effect of every other conversion adjustment.
- Goodwill amortisation is reversed for a US listing or a public US parent. A private company can elect to amortise goodwill over up to 10 years, but the goodwill balance still changes for acquisition costs and intangibles.
Where do FRS 102 and US GAAP differ?
| Area | FRS 102 (periods from 1 January 2026) | US GAAP | What you need to quantify |
|---|---|---|---|
| Revenue | Five-step model in Section 23, based on IFRS 15. Capitalising the incremental costs of obtaining a contract is a policy choice. | Five-step model in ASC 606. Incremental costs of obtaining a contract, such as sales commissions, must be capitalised under ASC 340-40, unless the amortisation period is one year or less and you use the practical expedient. | Timing of each revenue stream (delivery terms, implementation, escalating multi-year fees, principal or agent), the commission asset and its amortisation, and comparatives still on the old FRS 102 revenue model. |
| Leases | One lessee model: a right-of-use asset and a lease liability, with depreciation and interest in profit or loss. Short-term and low-value leases can be exempted. | ASC 842 keeps finance and operating classification. An operating lease has a right-of-use asset and liability but a single straight-line cost in operating expenses. No low-value exemption. Private companies can elect a risk-free discount rate. | The complete lease population including small equipment leases, a schedule per lease, lease term judgements on break clauses and renewal rights, and full ASC 842 calculations for comparatives, which FRS 102 transition does not restate. |
| Income tax | Deferred tax on timing differences, plus items such as business combinations, at substantively enacted rates. Uncertain tax treatments follow guidance based on IFRIC 23, added from 2026. | Deferred tax on temporary differences between the tax base and carrying amount of assets and liabilities, with limited exceptions such as non-deductible goodwill, at enacted rates (ASC 740). The full deferred tax asset is recognised with a separate valuation allowance where realisation is not more likely than not. Uncertain tax positions go through a two-step recognition and measurement test. | Deferred tax on every conversion adjustment, gross deferred tax assets and the valuation allowance, uncertain tax positions, and an estimated annual effective tax rate for quarterly reporting. |
| Credit losses on receivables | Incurred loss model under Section 11: a provision when there is objective evidence that a balance will not be collected, unless the company has elected to apply IFRS 9 recognition and measurement. | Current expected credit loss (CECL) model under ASC 326: lifetime expected losses from the day a receivable or contract asset is recognised, including balances that are not yet due. | An allowance by ageing band or customer pool, based on historical loss rates adjusted for current and, unless the ASU 2025-05 practical expedient is elected for current receivables, forecast conditions. |
| Software and development costs | Policy choice to capitalise development costs that meet the criteria in Section 18. | Research and development is expensed (ASC 730). Software is capitalised only under ASC 350-40 (internal-use software, which covers most SaaS platforms) or ASC 985-20 (software to be sold, from technological feasibility). ASU 2025-06 changes the ASC 350-40 criteria for annual periods beginning after 15 December 2027. | Development costs to reverse where they do not qualify, and platform costs to capitalise where they do, which needs time records by activity. |
| Goodwill and acquisitions | Goodwill amortised over its useful life, and over no more than 10 years where the life cannot be reliably estimated. Acquisition costs are part of the cost of the combination. Acquired intangibles are recognised separately only if separable and arising from contractual or legal rights, unless the company chose a policy of recognising more. | Public business entities do not amortise goodwill and test it for impairment at least annually (ASC 350). A private company can elect to amortise over up to 10 years, which must be reversed retrospectively in financial statements filed with the SEC once it becomes a public business entity. Acquisition costs are expensed (ASC 805). Intangibles are recognised if separable or contractual. | Reversal of amortisation, impairment testing, acquisition costs expensed, and possibly a revised purchase price allocation with more customer-related intangibles, unless a private company alternative is elected. |
| Share-based payment | Grant-date fair value. Awards that vest in instalments are usually expensed tranche by tranche, by analogy to IFRS 2, and the expense reflects the number of awards expected to vest. | ASC 718: grant-date fair value, with a policy choice to expense service-only graded awards straight-line and to account for forfeitures as they occur. Employer payroll taxes on awards are recognised when the event that triggers them occurs, usually exercise for options and vesting for share awards. | Expense recalculated under the chosen policies, push-down to the subsidiaries that employ the recipients, deferred tax based on cumulative expense, and the timing of the employer national insurance liability. |
| Inventory | A write-down is reversed when the circumstances that caused it no longer exist (Section 13). | A write-down to the lower of cost and net realisable value creates a new cost basis and is not reversed (ASC 330). | Write-backs to remove, and goods in transit where control has not passed to the customer. |
| Foreign currency | Translation differences go to other comprehensive income and are not reclassified to profit or loss when a foreign operation is sold. | The cumulative translation adjustment stays in accumulated other comprehensive income and is released to profit or loss on sale or complete or substantially complete liquidation of the foreign entity (ASC 830). | Cumulative translation adjustment by subsidiary, and remeasurement of monetary items in each entity’s functional currency. |
| Preference shares | Liability or equity based on the contractual obligation to pay (Section 22). | Mandatorily redeemable shares are liabilities (ASC 480). SEC registrants present shares redeemable on events outside the company’s control as temporary (mezzanine) equity. | Classification of each class of investor preference shares, and share issuance costs deducted from equity. |
| Presentation | Companies Act formats, usually cost of sales, distribution costs and administrative expenses. | Investor and SEC reporting usually presents expenses by function: cost of revenue, research and development, sales and marketing, and general and administrative. | Allocation of staff costs, depreciation and share-based payment by function, which needs cost centre data, and for a public business entity the natural expense disclosures required by ASU 2024-03. |
Did the 2026 FRS 102 changes close the gap with US GAAP?
Partly, for revenue. Section 23 now uses the same five steps as ASC 606, so the analysis of performance obligations, principal or agent and variable consideration is closer than it was. Two gaps remain. Capitalising sales commissions is optional under FRS 102 and required under US GAAP, and comparatives may still follow the old FRS 102 revenue model if your company chose not to restate them on transition.
For leases, the change brings UK companies to an IFRS 16 model, which is a different place from ASC 842. A small worked number shows why it matters. Take an office lease at £100,000 a year for five years. Under amended FRS 102, the cost appears as depreciation and interest, higher in the early years and all of it below EBITDA. Under ASC 842 the same lease is usually an operating lease, so you show £100,000 a year in operating expenses, straight-line, inside EBITDA. The lease and the cash are the same, but EBITDA differs by £100,000 a year. If your US investor or parent tracks EBITDA, tell them which basis the numbers are on, so you are all on the same page.
Two more lease points come up often. US GAAP has no low-value exemption, so the laptops and small equipment you exempted under FRS 102 go back into the assessment and are left out only on materiality. And because FRS 102 transition does not restate the prior year, any comparative year before 2026 needs full ASC 842 calculations.
Which differences take the most work?
Typically, three areas take most of the time.
- Revenue: it means reading contracts, not just ledgers. Implementation fees, escalating multi-year pricing, reseller arrangements and gross or net presentation of third-party costs all need a conclusion per contract type.
- Deferred tax: it is calculated last, because every other adjustment changes a book base. Loss-making UK companies often have no deferred tax on the balance sheet at all and end up with a full deferred tax asset and an equal valuation allowance under US GAAP.
- Presentation by function: it depends on data. If staff costs are not tracked by cost centre or engineering time is not recorded by activity, the allocation has to be built before the numbers can be.
Leases are mechanical once the population is complete, but garbage in, garbage out: the missed equipment lease or the break clause nobody checked is what the auditor finds.
Frequently asked questions
Is FRS 102 closer to IFRS or US GAAP?
IFRS. FRS 102 was developed from the IFRS for SMEs Accounting Standard, and the 2026 amendments base its revenue and lease sections on IFRS 15 and IFRS 16. A UK company moving to US GAAP faces many of the same differences as an IFRS reporter, plus the areas where FRS 102 simplifies IFRS, such as development costs, goodwill amortisation and credit losses.
Can a UK company keep FRS 102 for its statutory accounts and report US GAAP to investors or a US parent?
Yes, and that is the usual setup. UK statutory accounts are prepared under UK GAAP or UK-adopted IFRS. The US GAAP figures are produced alongside them through conversion adjustments or a second set of books, and the two are reconciled each period.
Does a US investor always require US GAAP?
No. Many US VC and PE investors accept FRS 102 or IFRS accounts. US GAAP usually becomes a requirement with an acquisition by a US company, a term in the investment agreement, or a US listing (unless the company qualifies as a foreign private issuer and reports under IFRS as issued by the IASB), so check the information rights clause in yours before you plan a conversion.
How many years of FRS 102 accounts need converting for a US IPO?
An emerging growth company presents two audited years of income statements and other registrants present three, with balance sheets for the two most recent year ends, plus interim periods depending on the age of the financial statements. Converting the earliest year also means converting its opening balances. A UK company that qualifies as a foreign private issuer can instead report under IFRS as issued by the IASB, which avoids a US GAAP conversion. An investor or acquirer may set its own requirement in the investment or purchase agreement.
How long does it take to identify the FRS 102 to US GAAP differences?
For a single UK entity with straightforward operations, identifying and documenting the material differences typically takes eight to twelve weeks. Quantifying the adjustments and preparing the audit package take longer, especially with large lease portfolios, complex revenue or several entities. For a fee range, see how I price a GAAP conversion or the GAAP conversion cost calculator.
Do the 2026 FRS 102 lease changes mean my leases already meet ASC 842?
No. ASC 842 keeps operating leases with a straight-line cost, has no low-value exemption and allows different discount rate elections. Comparatives before 2026 also need full ASC 842 calculations, because FRS 102 transition does not restate them.
Talk it through
If you have a US raise, a US acquirer or a first US GAAP audit coming up, book a call and we can talk through which of these differences are likely to matter for your company.
Katrina Nacci, CPA. I work independently as a cross-border accounting advisor, mainly on GAAP conversions and US reporting for European companies, after PwC in Boston, Frankfurt and Dubai. Last reviewed October 2026.
Sources: FRC, FRS 102 updates explainer (June 2026); FASB Accounting Standards Codification (ASC 326, 340-40, 350, 350-40, 480, 606, 718, 730, 740, 805, 830, 842); FASB ASU 2024-03, ASU 2025-05 and ASU 2025-06; SEC Regulation S-X and Form 20-F.