# Example accounting policies under FRS 102 Section 1A (2026)

Source: https://www.statutoryaccounts.io/templates/accounting-policies-example/

Last reviewed: 28 October 2026

A small company's accounting policies note sets out the basis of preparation, going concern and the policies for its material items. For periods beginning on or after 1 January 2026, FRS 102 adds a five-step revenue model and puts most leases on the balance sheet, so the turnover and lease policies change. Example wording, to adapt, follows.

## Key facts

| | |
| --- | --- |
| Required | Accounting policies, including depreciation and diminution in value (FRS 102 1AC.3) |
| From 2026 | Periods beginning on or after 1 January 2026 (Periodic Review 2024) |
| Revenue | Five steps: contract, performance obligations, transaction price, allocation, recognition |
| Leases (lessee) | Right-of-use asset and lease liability; exemptions for short-term (12 months or less) and low-value leases |
| Low value | No monetary limit; cars, vans and buildings are never low value |
| Transition | Leases: no restatement of comparatives; revenue: cumulative effect at the start or full restatement |

As at 25 October 2026.

## Example policies

Illustrative only: the company, the names and every figure are invented. Adapt the wording to the company's facts; the directors remain responsible for the accounts they approve.

### Basis of preparation

These financial statements have been prepared in accordance with FRS 102, including the provisions of Section 1A Small Entities, and the Companies Act 2006, under the historical cost convention. They are presented in pounds sterling, the company's functional currency, rounded to the nearest pound.

### Going concern

The directors have prepared the financial statements on a going concern basis. In reaching that conclusion they considered the company's forecasts, its available finance and the risks it faces over the foreseeable future. [Describe any significant judgements, or any material uncertainty; see the going concern note examples.]

### Turnover

Turnover is revenue from contracts with customers, excluding VAT. The company identifies the performance obligations in each contract, allocates the transaction price to them and recognises revenue when, or as, each obligation is satisfied: for the sale of goods, on delivery; for services provided over time, by reference to the stage of completion.

### Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less accumulated depreciation and impairment. Depreciation is charged to write off the cost less estimated residual value over each asset's useful life: plant and machinery [25% reducing balance]; fixtures and fittings [over 5 years]; right-of-use assets [over the lease term].

### Leases

At the start of a lease the company recognises a right-of-use asset and a lease liability, measured at the present value of the lease payments. Lease payments are split between interest and repayment of the liability. Leases of 12 months or less and leases of low-value assets are recognised as an expense over the lease term. On first applying the new rules on 1 January 2026 the company recognised former operating leases at the present value of the remaining payments and did not restate the comparatives.

### Taxation

The tax charge comprises current tax and deferred tax. Its components are given in the tax note.

### Dividends

Dividends declared and paid in the year are shown in the notes and deducted from the profit and loss reserve.

## The 2026 changes in practice

- Revenue (Section 23). A five-step model based on IFRS 15 with simplifications. On transition a company either recognises the cumulative effect at the date of first application, restating only contracts not yet completed and not the comparatives, or restates in full; it discloses the effect.
- Leases (Section 20). Lessees bring leases onto the balance sheet. The short-term exemption (lease term of 12 months or less, without a purchase option) is chosen by class of asset; the low-value exemption lease by lease. There is no monetary threshold for low value: tablets, PCs, small office furniture and telephones can qualify; cars, vans, trucks, land and buildings and production line equipment never do.
- Lease transition. Comparatives are not restated and the cumulative effect goes to opening retained earnings. For a former operating lease, the liability is the present value of the remaining payments at the company's incremental (or obtainable) borrowing rate, and the asset equals the liability, adjusted for prepaid or accrued lease payments.
- Early application. Allowed only if all the amendments are applied at the same time, with disclosure.
- Not in FRS 105. Micro-entities keep the operating and finance lease model; the new lessee rules do not apply to them.

The figures that go with these policies are in the [small company accounts example](https://www.statutoryaccounts.io/templates/small-company-accounts-example/).

## Writing your own policies

- Write a policy only for items that are material to the company, and say what the company actually does; a generic paragraph that does not match the figures misleads.
- State the depreciation rates and methods; they are a required part of the policies note.
- If the format of the statements changes, the notes give the particulars and the reasons (1AC.7).
- Keep the going concern paragraph specific: from 2026 it must give the basis, confirm that the future was considered and set out significant judgements.

## Frequently asked questions

**Which accounting policies must a small company disclose?**
The policies for its material items, including depreciation and diminution in value of assets. From 2026 the notes also state compliance with FRS 102 and the going concern basis.

**Do small companies have to put leases on the balance sheet from 2026?**
Yes, for periods beginning on or after 1 January 2026, unless a lease is short-term or of a low-value asset. Micro-entities under FRS 105 are not affected.

**Are company cars low-value assets under the new lease rules?**
No. FRS 102 lists cars, vans, trucks, land and buildings and production line equipment as never low value, whatever their cost.

**Must comparatives be restated for the lease changes?**
No. On transition the cumulative effect goes to opening retained earnings and the comparatives are not restated.

## Sources

- [FRC: FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland](https://www.frc.org.uk/library/standards-codes-policy/accounting-and-reporting/uk-accounting-standards/frs-102/)
- [FRC: FRS 102 (September 2024)](https://www.frc.org.uk/documents/7668/FRS_102_September_2024_tmKYWO6.pdf)
- [FRC: amendments to FRS 102 and other FRSs, Periodic Review 2024](https://www.frc.org.uk/documents/7128/Amendments_to_FRS_102_and_other_FRSs.pdf)
- [FRC: Periodic Review 2024, key changes](https://www.frc.org.uk/documents/7131/Periodic_Review_2024_Key_changes.pdf)
- [FRC: FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime (September 2024)](https://www.frc.org.uk/documents/7662/FRS_105_September_2024_V7owJHN.pdf)
- [The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008 (SI 2008/409), Schedule 1](https://www.legislation.gov.uk/uksi/2008/409/schedule/1/part/1)
- [SI 2008/409, Schedule 1 Part 3 (notes to the accounts of a small company)](https://www.legislation.gov.uk/uksi/2008/409/schedule/1/part/3)

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