Stuart works closely with entrepreneurial clients in the property and construction sector. As one of the country’s only focused property and construction accountants and business advisors, Stuart and his team of experts use their specialist knowledge to deliver sector specific advice across the UK.
Stuart has worked with some of the biggest names in the property & construction sector, including DOMIS, Torsion, Allied London and Landmark Group.
FRS 102 Construction & Real Estate
14 October 2026
FRS 102 has been revised for accounting periods beginning on or after 1 January 2026 and represents a significant development in how UK businesses account for revenue.
The changes are particularly relevant to businesses with more complex income streams such as construction and real estate businesses who have varying contractual arrangements. The changes warrant a review of accounting policies, the structure of contracts, project monitoring and the capture of financial information.
The revisions to Section 23, Revenue from Contracts with Customers introduces a new five-step approach to revenue recognition. Businesses are required to:
A major difference to the current standard is the emphasis on identifying separate performance obligations within customer contracts and allocating the transaction price to each obligation (aligned with IFRS 15) based on their standalone selling prices. This may result in changes to revenue recognition patterns and require additional systems and processes.
The requirements are more customer-centric, considering when control of goods and services passes to the customer; rather than the risks and rewards of ownership.
Construction contracts frequently involve a combination of activities including design, procurement, construction, installation, project management and maintenance.
Under the revisions, businesses need to establish whether these activities should be accounted for individually or as part of a single performance obligation. For example, a contractor may be responsible for the design and construction of a facility which includes design, procurement and construction. The assessment of revenue would need to consider the specific terms and commercial substance of the contract to identify whether these activities, are integrated to deliver one combined outcome, or whether they are separate obligations.
Revenue recognition is likely to require greater analysis at the outset of a project, with documented conclusions.
Construction projects may involve several agreements between the same customer and contractor. These may relate to different stages of a development, additional works or separate elements of a wider project.
Under the revised requirements, multiple contracts may need to be considered together where they are closely linked which may affect the measurement and timing of revenue.
This could apply where contracts:
Construction businesses should therefore consider the accounting consequences when negotiating related contracts, particularly where projects are divided into separate legal agreements for commercial or operational reasons.
Construction entities commonly recognise revenue based on the stage of completion at the reporting date. Recognising revenue as construction work progresses may still be appropriate under the revised requirements; however, businesses must first establish that the conditions for recognising revenue over time have been met. The conditions are:
The third condition can be particularly relevant to bespoke construction projects. The contractual right to payment needs to provide appropriate compensation for the work carried out to date.
Where the criteria for recognising revenue over time are not satisfied, revenue will generally be recognised at the point when control of the relevant goods or services transfers to the customer.
Where over-time recognition is appropriate, businesses need to select a method of recognition which can include:
For example, on a £10m construction contract with a 20% margin, a QS valuation establishes that 40% of the contracted work has been completed at the reporting date. Only £2m of costs have been incurred.
Currently, the contractor would recognise £4m of revenue and provide for £3.2m of costs. Under the revised standard the contractor would recognise £4m of revenue and only £2m of costs, resulting in significantly different profits.
Reliable project reporting is particularly important here. Finance teams will need access to accurate information about costs incurred, work completed and expected project outcomes.
Construction contracts can contain a range of variable amounts such as bonuses, incentives, penalties, liquidated damages, discounts, claims and variations.
Under revised Section 23, businesses need to estimate variable consideration using an appropriate method. Depending on the circumstances, this may involve:
Businesses cannot automatically recognise the full estimated amount. Variable consideration is subject to constraints and should only be included where it is highly probable that doing so that the revenue will be received.
This places greater importance on the quality of project forecasting and the evidence supporting estimates. Construction businesses require strong processes for monitoring variations with finance and commercial teams working closely together.
Changes to construction contracts are a normal part of many projects. Additional works, design changes, specification amendments and unforeseen circumstances can all result in the original agreement being modified.
Depending on the circumstances, a modification may be treated as:
The appropriate treatment depends on factors including whether the additional goods or services are distinct and how the revised pricing relates to the additional work. Significant variations should therefore be assessed when they occur rather than waiting until the reporting date.
Warranties are common in construction contracts, but they do not all receive the same accounting treatment.
The key consideration is whether the warranty simply provides assurance that the completed work meets the agreed specification, or whether it provides the customer with an additional service.
Broadly:
The distinction can affect both revenue recognition and the timing of associated costs.
Construction businesses should review the terms and substance of their warranty arrangements rather than assuming that every warranty should be treated in the same way.
The revised requirements also introduce specific considerations for costs incurred in obtaining and fulfilling contracts.
Certain incremental costs of obtaining a contract, such as qualifying sales commissions, may be recognised as an asset where they would not have been incurred if the contract had not been obtained; and the business expects to recover them.
There is also a practical approach available for certain qualifying costs where the period over which they would otherwise be amortised is one year or less. These costs can generally be recognised as an expense when incurred.
For businesses with significant contract-related expenditure, this may require changes to existing accounting policies and internal processes.
Construction businesses should consider whether their current systems capture sufficient information to identify qualifying costs and distinguish them from expenditure that should be recognised immediately.
These continue to be considered under Section 21, Provisions and Contingencies. Where the unavoidable costs of fulfilling a contract exceed the economic benefits expected to arise from it, a provision may be required.
For construction and real estate businesses, the changes to FRS 102 are more than an accounting technicality; they provide an opportunity to review how contracts are structured, priced, monitored and reported.
At Sumer, our construction and real estate specialists work with contractors, developers, investors and other property businesses across the UK, combining accountancy, audit, tax and business advisory expertise.
Our approach is to help businesses understand not just what the revised standard says, but what it means commercially – from project reporting and forecasting through to profitability, funding and business planning.
If your business reports under FRS 102 and has significant construction, development or property contracts, now is the time to review whether your existing revenue recognition policies remain appropriate under revised Section 23.
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