Key accounting and regulatory developments for UK advisers in 2026

The accounting and auditing landscape in the UK is shifting faster than at any point in recent years. From revised FRS 102 standards on leasing and revenue recognition to the growing influence of artificial intelligence in professional practice, accountants and advisers face a genuinely demanding set of changes.

This article sets out the key issues, across ethics, technology, regulation, financial reporting standards and sustainability disclosures, that deserve attention in 2026 and beyond.

Professional ethics: more rules, not fewer

The ICAEW Code of Ethics has grown from around 29 pages to 244. The IESBA international code, which underpins the UK professional bodies’ own standards, is similarly detailed. This reflects a more complex business environment and a sharper regulatory focus but a larger rulebook does not substitute for genuine professional judgement.

The five core principles remain:

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

In practice, keeping ethics current is widely regarded as more than a CPD requirement, it is the mechanism by which professional trust with clients, regulators, and the public is sustained over time.

Artificial intelligence in accounting: opportunity, risk, and governance

AI is now embedded in accounting practice in ways that were theoretical only a few years ago. Large language models can draft reports, interpret standards, extract data, and assist with reconciliations. The productivity benefits are real. So are the governance responsibilities.

The FRC’s guidance on generative and agentic AI (published March 2026) is directed specifically at central technical teams within audit firms, covering the development of AI tools and audit methodologies. It is not a general framework for all accounting work. That said, its analysis of how LLMs can fail is technically grounded and widely relevant to anyone using these tools in professional practice.

The guidance identifies five categories of deficient LLM output:

• Hallucinations – confident but incorrect statements
• Omissions – the absence of information that should be included
• Distortions – misrepresentations of source material
• Faulty reasoning – illogical or inconsistent conclusions
• Inconsistencies – outputs that contradict each other or the underlying data

These arise because LLMs lack true semantic awareness, depend heavily on training data, and operate within a finite context window.

Within audit specifically, the FRC is clear that the firm and engagement partner retain full regulatory accountability regardless of how the work was produced. The four categories of mitigation the guidance sets out – system design, certification, staff education and governance, and human-in-the-loop review – are framed around audit quality obligations under ISQM (UK) 1 and ISA (UK) 220.

For non-audit accounting work, no equivalent mandatory framework yet exists. However, the same underlying risks apply whenever AI-generated output is relied upon in professional work. Good practice, whether or not it is formally required, points in the same direction: clear internal policies on AI use, competent human review, and full professional responsibility for everything issued to clients.

Professional judgement and the paradox of codification

The FRC’s updated guidance on professional judgement acknowledges an inherent tension: regulators urge professionals to exercise more judgement while simultaneously issuing ever more detailed prescription on how that judgement should be exercised.

As AI becomes capable of applying comprehensive documented requirements, the distinctively human contribution shifts to setting objectives, questioning whether rules serve their purpose, recognising when following procedure produces an absurd result, and maintaining ethical accountability. Many in the profession would argue that its long-term value in an AI-enabled world will rest on that quality of judgement, not on rule-application that a well-prompted model may assist with, but cannot yet perform reliably without human review and verification.

Internal controls for SMEs: a renewed focus

Internal controls are receiving renewed attention from auditors and AI tool developers alike. For SMEs, segregation of duties is difficult and systems procedures are rarely documented but this does not in itself prove fraud has occurred, it does, however, elevate the risk that theft or error could go undetected, and a risk-based, substantive audit approach may be appropriate.

AI works best within a defined workflow. Where control procedures are documented, AI can assist in testing them, reconciling outputs, and flagging anomalies for human review. For clients going through audits, this is also a practical opportunity to document accounting procedures and approval workflows, improving both audit efficiency and the business’s own financial management.

Anti-money laundering: updated CCAB guidance

The CCAB has updated its AML, counter-terrorist financing, and counter-proliferation financing guidance, now approved by HM Treasury.

For individual clients, the minimum requirements are:

• Full name
• Date of birth
• Residential address

All must be verified from independent, reliable sources. Electronic identification is acceptable where the process is secure and cannot be fraudulently adjusted or misused.

For LLPs, the minimum information required is:

• Registered name
• Registered number
• Registered office address

For companies, the specific minimum verification requirements should be confirmed against the current CCAB AML guidance (approved by HM Treasury) directly, as requirements may differ from those listed for LLPs.

However, the minimum is not sufficient on its own in either case. A risk-based approach demands an understanding of beneficial ownership and control structure, particularly for LLPs, where structural complexity has historically been exploited.

Source of funds and source of wealth remain key areas of scrutiny. Geographic location, the nature of the business, changes in transaction patterns, and ownership structure should all be considered together. In practice, a checklist is a useful starting point, but is not a substitute for professional judgement.

Companies House reform and mandatory P&L filing

The Economic Crime and Corporate Transparency Act is driving significant changes to the UK companies register. The key accounting reforms, effective 1 April 2028, include:

• Mandatory online filing of annual accounts via commercial software
• Removal of the abridged accounts option
• A strengthened eligibility statement for companies claiming an audit exemption
• A requirement for small companies and micro-entities to file profit and loss accounts
• A reduction in the number of times a company can shorten its accounting reference period

The P&L filing requirement is the most commercially sensitive aspect of the reforms. Importantly, small companies and micro-entities can opt out of having their profit and loss accounts published on the public register, meaning competitors will not automatically gain sight of margin and profitability data. However, Companies House, HMRC, and law enforcement will retain access to all filed information for fraud prevention and tax compliance purposes.

The practical implication is that cost categorisation, between cost of sales and overheads, and disclosure choices within micro-entity accounts will carry more weight than before. Advisers should begin conversations with affected clients now, and help them understand both the opt-out mechanism and what will remain accessible to regulators regardless of that election.

Audit regulation: proportionality and the SME guide

The FRC’s dedicated guide for SME audits reflects a broad recognition that existing standards were not always well-calibrated to smaller engagements. Documentation for smaller entities will generally be simpler, there is no requirement to document consideration of irrelevant standards, and substantive testing remains the primary evidence source.

A recurring observation in practice is that ISA 315 (risk assessment) and ISA 330 (the auditor’s responses to assessed risks) are sometimes applied more prescriptively than the standards themselves require. The SME guide is intended to address this, affirming that a documented understanding of procedures and a risk-based approach to testing are appropriate for smaller, less complex entities.

FRS 102 Section 20: leases

The revised FRS 102 Section 20 is now in force. Most leases must be recognised on the balance sheet, following the IFRS 16 approach with certain FRS 102 exemptions.

The two key recognition exemptions are:

• Short-term leases (12 months or less) – but the exemption must be applied by class and cannot be used to circumvent the standard by artificially renewing or splitting longer arrangements
• Low-value asset leases – the FRS 102 threshold is intended to be more permissive than the IFRS 16 equivalent, though the financial limit remains low

A contract is or contains a lease if it conveys the right to control and use an identified asset for a period of time in exchange for consideration. An asset may be identified explicitly or implicitly in a contract. It is not possible to keep a lease off the balance sheet by breaking the underlying asset into components.

For lessees, the result is a right-of-use asset and a corresponding lease liability, changing key financial ratios and potentially complicating covenant compliance. In sectors under pressure, such as hospitality with leased sites that have declined in market value, this may produce a technically insolvent balance sheet even where the business remains cash-flow solvent. Embedded leases within service contracts and variable payments linked to indices are areas where careful reading of the standard is required.

FRS 102 Section 23: revenue from contracts with customers

The revised Section 23 brings UK GAAP closer to IFRS 15 through a five-step model:

• Step 1: Identify the contract with a customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations
• Step 5: Recognise revenue when each performance obligation is satisfied

For straightforward transactions this model is simple. Complexity arises in construction contracts, bundled arrangements, and contracts with variable consideration.

Variable consideration – rebates, performance bonuses, penalties, and index-linked changes – may only be included in the transaction price to the extent it is highly probable that a significant revenue reversal will not occur. A prudent reading of ‘highly probable’ supports recognition at around the 70% confidence level. Contract modifications may be treated as a variation to the existing contract or as a separate contract, with significant implications for revenue timing. The revised standard also replaces contract work in progress with contract assets and contract liabilities on the balance sheet.

IFRS updates: financial instruments and presentation

IFRS 9 amendments effective 1 January 2026 clarify the classification of financial assets with ESG-linked features, and separately address the derecognition of financial liabilities settled via electronic payment systems. For the banking sector, regulators have noted that expected credit loss provisioning in some firms remains insufficiently sophisticated, robust age analysis, quantitative challenge to liability estimates and scenario modelling are all expected.

IFRS 18, replacing IAS 1 on the presentation of financial statements, introduces a new income statement structure with five defined categories. Though not yet in force, it will require changes to how management presents performance and labels financial results. IFRS 19 covers disclosure requirements for subsidiaries without public accountability; those affected should confirm the effective date and review the additional disclosure requirements.

Sustainability disclosure standards: IFRS S1 and S2

IFRS S1 – the General Requirements for Disclosure of Sustainability-related Financial Information – is structured around four pillars: governance, strategy, risk management, and metrics and targets. IFRS S2 specifically addresses climate-related disclosures specifically, feeding back into the S1 framework.

The distinction matters in practice. A company facing depletion of a key raw material faces a fundamental sustainability risk under S1. A company whose customer base is sensitive to structural shifts in climate-related demand faces a risk under S2. For accountants, the contribution is one part of a larger governance exercise — sustainability disclosures require input from across the business, and the standard signals that this is primarily a governance issue, even though financial figures and targets form a material part of the disclosure.

Looking ahead

The convergence of new standards, stronger regulation, and AI adoption makes 2026 a pivotal year for accounting professionals. The businesses and practices best placed to navigate this transition are, in most advisers’ experience, those that engage early: reviewing revenue and lease accounting policies before auditors arrive, embedding proportionate AI governance before it becomes a regulatory issue, and treating AML and ethics compliance as ongoing professional disciplines rather than annual checkbox exercises.

For advisers working with SME clients, the Companies House reforms represent a practical opportunity to add value, helping clients understand what their published accounts will disclose and preparing them for a more transparent reporting environment. Getting to grips with FRC Practice Note 28 Guidance for audits of small and medium sized entities is a must.

This article is based on the webinar Accounting issues: Online CPD course delivered by Tolley, when Ralph Tiffin, chartered accountant, explored current and emerging accounting issues, regulatory developments, and the design and implementation of effective controls for SMEs.

The session examined the skills required by accounting and audit practitioners, with particular focus on the now-active FRS 102 Sections 20 and 23 covering leases and revenue from contracts with customers.