GAAP stands for generally accepted accounting practice (in the US, "principles"): the body of standards, law and accepted practice that determines how accounts are prepared. In the UK, UK GAAP means the Financial Reporting Council's standards FRS 100 to FRS 105, read with the Companies Act 2006. FRS 102 is the main standard, micro-entities may use FRS 105, and the alternative is UK-adopted IFRS. The biggest change in a decade took effect for periods beginning on or after 1 January 2026, when FRS 102's lease and revenue rules were aligned with IFRS.
What UK GAAP consists of
The FRC publishes six Financial Reporting Standards that together make up UK GAAP:
- FRS 100. The overall application rules: which framework an entity can use;
- FRS 101. A reduced disclosure framework for the individual accounts of subsidiaries and ultimate parents, applying adopted IFRS recognition and measurement with fewer disclosures;
- FRS 102. The main standard, applying to entities that are not using adopted IFRS, FRS 101 or FRS 105. Section 1A contains the lighter presentation and disclosure regime for small entities;
- FRS 103. Insurance contracts;
- FRS 104. Interim reports for entities applying FRS 102;
- FRS 105. The standard for companies that qualify for, and choose, the micro-entities regime.
The standards sit on top of company law. The Companies Act defines accounting standards as statements of standard accounting practice issued by the body prescribed in regulations, which regulations prescribe as the Financial Reporting Council, and the accounting regulations set the formats and many disclosures. "UK GAAP" is therefore shorthand for both layers together.
UK GAAP or IFRS: who uses what
Section 395 of the Companies Act lets a company prepare its individual accounts either as "Companies Act individual accounts", which in practice means UK GAAP, or under UK-adopted international accounting standards. Section 403 removes the choice for one group: the consolidated accounts of a parent whose securities are admitted to trading on a UK regulated market must be prepared under UK-adopted IFRS. Everyone else chooses, and the size of the company drives the realistic options:
| Size (two of three tests, financial years beginning on or after 6 April 2025) | Turnover | Balance sheet total | Employees | Usual framework |
|---|---|---|---|---|
| Micro-entity | Up to £1m | Up to £500,000 | Up to 10 | FRS 105, or FRS 102 Section 1A |
| Small company | Up to £15m | Up to £7.5m | Up to 50 | FRS 102 Section 1A |
| Medium or large | Above the small limits | Full FRS 102, FRS 101 or IFRS | ||
The micro-entities regime is optional, but a company that opts in must apply FRS 105. The trade-off between the frameworks, including when a subsidiary should use FRS 101, is set out in our comparison of FRS 101, FRS 102 and FRS 105.
What changed from 1 January 2026
The FRC issued the Periodic Review 2024 amendments in March 2024. Most are effective for accounting periods beginning on or after 1 January 2026, so a company with a 31 December year end is applying them in its 2026 accounts now. The main changes:
- Revenue. A new Section 23 introduces a single five-step model, recognising revenue from contracts with customers when, or as, control of the goods or services passes to the customer. It follows the approach of IFRS 15;
- Leases. For lessees, the operating and finance lease distinction is removed: right-of-use assets and lease liabilities go on the balance sheet for most leases, mirroring IFRS 16;
- Fair value. A new Section 2A gives more guidance on valuation techniques and amends the definition of fair value;
- Supplier finance. New disclosures about supply chain finance arrangements, which applied a year earlier, from 1 January 2025.
The FRC's own explainer warns users that key financial metrics such as gearing, interest cover, current ratio and EBITDA may change. Loan covenants written on the old basis are worth checking before the first set of accounts under the new rules is signed.
UK GAAP compared with IFRS and US GAAP
After the 2026 changes, FRS 102 is closer to IFRS than ever, but it is still a simplified, single-standard regime. Differences that matter in practice include:
- Disclosure. FRS 102 requires far less, and Section 1A small entities need only a balance sheet, profit and loss account and a limited set of notes. A cash flow statement is not required from small entities, as covered in our cash flow statement guide;
- Financial instruments. FRS 102 splits instruments between basic (Section 11) and other (Section 12), but lets an entity choose the recognition and measurement provisions of IAS 39 or IFRS 9 instead, as an accounting policy choice;
- Goodwill. FRS 102 treats goodwill as having a finite life and amortises it, over no more than 10 years where the life cannot be reliably estimated. IFRS requires the recoverable amount of goodwill to be assessed every year through an impairment test;
- Inventories. Both prohibit LIFO.
US GAAP is a separate body of rules. It matters to UK companies mainly when a US parent needs group reporting packs, which then have to be converted from UK GAAP for consolidation.
Why GAAP matters for tax
The accounts are the starting point for corporation tax. Section 46 of the Corporation Tax Act 2009 requires trade profits to be "calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law". For a UK company not preparing IAS accounts, the Corporation Tax Acts define generally accepted accounting practice as UK GAAP. A change of accounting policy, such as moving to the new lease or revenue rules, can therefore move taxable profit as well as reported profit, and transitional adjustments need specific attention in the tax computation.
Practical points for directors
Check which framework your accounts currently follow; it is stated in the accounting policies note. If your company crossed the size thresholds in either direction, consider whether a lighter regime is now available. If you are on full FRS 102, identify leases, multi-element contracts and supplier finance arrangements early, because the 2026 changes are applied with transition adjustments that need opening balances.
Acumon prepares accounts under every UK framework. Our FRS 102 accounts team handles the 2026 transition, including lease schedules and revenue reviews, and our FRS 105 micro-entity accounts service covers the smallest companies.