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    How to Convert FRS 102 to US GAAP

    July 10, 2026

    Converting FRS 102 to US GAAP takes seven steps: understand what flows through each account, bridge the chart of accounts, document the current FRS 102 policies, define the proposed US GAAP policies, identify the material differences, calculate the adjustments for each period, and prepare US GAAP financial statements supported by technical accounting memos. UK companies need this when they enter US capital markets, raise investment from US PE and VC firms, or prepare for acquisition by a US buyer.

    Both frameworks are accruals-based and use similar income statement structures, but they differ materially in goodwill, development costs, deferred tax and financial instruments. Revenue and leases still differ even after the FRS 102 amendments that apply from 1 January 2026. For a single UK entity with straightforward operations, identifying and documenting the material differences typically takes eight to twelve weeks.

    Where FRS 102 and US GAAP differ most

    • Goodwill. FRS 102 amortises goodwill over its useful life, and where the useful life cannot be reliably estimated, over no more than 10 years (FRS 102 paragraph 19.23). Under US GAAP, public business entities do not amortise goodwill and test it for impairment at least annually (ASC 350). US private companies may elect to amortise goodwill over 10 years or less under the private company alternative.
    • Development costs. FRS 102 lets a company choose to capitalise development costs that meet the recognition criteria. US GAAP expenses research and development as incurred (ASC 730). Software costs are capitalised only under ASC 350-40 (internal-use software) or ASC 985-20 (software to be sold). ASU 2025-06, issued in September 2025, changes the ASC 350-40 capitalisation criteria for annual periods beginning after 15 December 2027, with early adoption permitted.
    • Deferred tax. FRS 102 Section 29 uses a timing differences approach. US GAAP (ASC 740) uses a balance sheet approach based on temporary differences and adds a recognition threshold for uncertain tax positions.
    • Financial instruments. FRS 102 Sections 11 and 12 classify instruments as basic or other. US GAAP spreads the same balances across several topics, including the expected credit loss model for trade receivables (ASC 326) and derivatives and embedded derivatives (ASC 815).
    • Revenue. For accounting periods beginning on or after 1 January 2026, FRS 102 Section 23 applies a five-step model based on transfer of control, closer to IFRS 15 and ASC 606 (FRC, Periodic Review 2024). Each policy still needs to be checked against ASC 606, and comparative periods may still reflect the old FRS 102 revenue model if the company used the modified retrospective approach.
    • Leases. From the same date, FRS 102 Section 20 brings most lessee leases onto the balance sheet, with exemptions for short-term leases and a low-value exemption that is broader than the IFRS 16 one. ASC 842 keeps the operating and finance lease classification for lessees and has no low-value exemption, so leases a UK company keeps off balance sheet under FRS 102 may need to be recognised under US GAAP. FRS 102 lease transition does not restate comparatives, so the comparative years in a conversion need full ASC 842 calculations.

    Step 1: Understand the nature of transactions by account

    Start with the UK company’s trial balance under FRS 102. For each account, document what types of transactions actually flow through it. This step confirms what the company is actually doing in practice, not what the standard technically requires. You may find that certain transactions are not being tracked or measured in a way that will support US GAAP reporting, or that materiality thresholds differ between the two frameworks.

    A single FRS 102 account may contain mixed transaction types that need to be split under US GAAP, or may require different accounting treatment depending on the nature of the transaction within it.

    Step 2: Build the chart of accounts bridge

    Once you understand the nature of transactions, map every account to a US GAAP financial statement line. This is not always one-to-one. Some FRS 102 line items need to be split (deferred income between current and non-current, for example). Some US GAAP line items need to be built from multiple FRS 102 accounts.

    The output of this step is a chart of accounts bridge document that shows, for each account, its FRS 102 classification and its US GAAP classification. This document becomes the foundation of the conversion workbook.

    Step 3: Document current FRS 102 accounting policies

    Document the accounting policy for each material area: how revenue is recognised, how leases are accounted for, whether development costs are capitalised, how financial instruments are measured. Cover everything from initial recognition and measurement through subsequent measurement. Validate that the existing accounting treatment reflects what is actually being done operationally, not just historical practice or theoretical standard requirements.

    Step 4: Define the proposed US GAAP treatment

    Engage a US GAAP expert to write up the proposed US GAAP treatment for each material area. The goal is normally to stay as close as possible to current practice where US GAAP options allow, while benchmarking against peer company treatments in your industry. This step produces a clear technical definition of what the company will do under US GAAP before you calculate any adjustments.

    Step 5: Identify the material FRS 102 to US GAAP differences

    With both the FRS 102 practices and proposed US GAAP treatments documented, identify where they diverge. The differences vary by company, industry and transaction complexity. Start with the areas in the first section of this guide: goodwill amortisation, development costs, deferred tax, financial instruments, revenue recognition, and lease classification and measurement.

    Step 6: Calculate the adjustments for each period

    Engage a GAAP conversion specialist to translate each identified difference into practical next steps: how the calculation will be made, what supporting files and subledger records are needed, and how the adjustment will be documented in the conversion workbook. This is the work I walk clients through during my GAAP Summit, which helps upskill your team alongside completing the technical conversion.

    For each difference, calculate the adjustment required to restate from FRS 102 to US GAAP. Quantify the impact for each period being converted, plus the opening balance sheet of the earliest period. The number of periods depends on the purpose. For a US IPO, an emerging growth company presents two audited fiscal years and other registrants present three (SEC, 2026). An investor or acquirer may set its own requirement in the investment or purchase agreement.

    The adjustments are captured in the GAAP conversion ledger, which produces a US GAAP trial balance that rolls up to the US GAAP balance sheet and income statement. Each adjustment column is labelled and traces back to supporting documentation.

    Step 7: Prepare the US GAAP financial statements and audit package

    With the conversion workbook complete and the adjustments documented, prepare the US GAAP financial statements. For material areas (revenue recognition, leases, financial instruments), full technical accounting memos support the audit package. These memos explain the FRS 102 treatment, the US GAAP treatment, the basis for the adjustment, and the journal entry required.

    The financial statements, together with the conversion workbook and technical accounting memos, constitute the audit package. For the full list of what auditors expect to receive, see what your auditor actually needs from a GAAP conversion.

    Common pitfalls when converting FRS 102 to US GAAP

    • Assuming the 2026 FRS 102 revenue and lease changes remove the need for revenue and lease adjustments. They reduce some differences but do not align FRS 102 with ASC 606 or ASC 842.
    • Converting only the current year. Comparative periods prepared before 2026 follow the old FRS 102 revenue and lease models and usually need larger adjustments.
    • Leaving low-value leases off balance sheet. ASC 842 has no low-value exemption.
    • Carrying over capitalised development costs that do not qualify for capitalisation under US GAAP.
    • Documenting policies from the notes to the statutory accounts rather than from what the finance team actually does.

    What to prepare before engaging an advisor

    • FRS 102 trial balances for each period to be converted, plus the opening balance sheet of the earliest period
    • General ledger detail for the material accounts
    • The statutory financial statements and accounting policy notes
    • Key revenue contracts and the lease listing with the underlying lease agreements
    • Fixed asset and intangible asset registers, including capitalised development costs
    • Corporation tax computations and deferred tax workings
    • Share option and other share-based payment agreements

    How long an FRS 102 to US GAAP conversion takes

    The timeline depends on the scope and complexity of your conversion. Identifying and documenting material differences typically takes eight to twelve weeks for a single-entity UK company with straightforward operations. Calculating adjustments takes considerably longer, especially where significant lease portfolios, complex revenue streams or multiple entities are involved. Preparing audit memos and supporting documentation for the audit package adds further time.

    Working with a GAAP conversion expert and US GAAP specialist shortens the timeline, reduces the burden on your internal finance team, and reduces risk to the audit. You get the technical expertise without consuming resources that your team needs for operations.

    For a transparent view of what a full conversion costs, see my pricing page.