Over the past decade, the North East of England has experienced a period of rapid growth. From AI breakthroughs to fintech firms booming across the region, the local tech scene continues to thrive.
But like other industries, the post-COVID years have presented many challenges for our region’s tech businesses, and a major accounting shake-up coming in January 2026 could make things even trickier.
New rules under the revised FRS 102 standard are set to overhaul how companies report their finances. The introduction of a new five-step model for revenue recognition requires businesses to identify each distinct performance obligation within their contracts with customers, determine the transaction price, and include estimates for variable considerations like milestone payments or discounts.
Contracts in the tech world can be complex beasts, often long-term, multi-layered, and performance-based. Multi-element software deals and bundled contracts will require revenue to be split and recognised at different times, increasing complexity and potentially altering the timing of income recognition for businesses. As a result of this, headline turnover could shrink even while cash coming in stays the same, affecting KPIs for growth-stage tech businesses and investor reporting.
The challenges don’t stop there. Lease accounting is also getting an overhaul. Lease costs such as office rental, servers, cloud contracts and any other equipment can no longer be recognised off the balance sheet as rental costs. Instead, they must be reflected as assets and liabilities. This could change the shape of company accounts dramatically, shifting what was once a simple rental expense into depreciation and interest. For those reliant on bank funding, it could trigger fresh conversations with lenders about covenants and credit terms.
It is also worth noting that there is a change in audit thresholds which came into effect for financial years that begin on or after 6 April 2025, potentially removing the need for an audit for some businesses. Companies may qualify for an audit exemption if they have at least 2 of the following:
- An annual turnover of no more than £15 million
- Assets worth no more than £7.5 million
- Fifty or fewer employees on average.
For a fast-growing sector like the North East’s tech ecosystem, these changes come on top of existing pressures. Talent shortages remain severe, with companies competing for skilled developers, AI specialists, and data scientists. Meanwhile, investment, although flowing better than ever before, still lags behind tech hubs like London and the North West, making clear, consistent financial reporting critical to attracting and retaining funding.
What was once a conversation about code and innovation is increasingly a conversation about compliance and numbers. The tech talent revolution in the North East depends as much on mastering these new rules as it does on breaking new technological ground. Get the numbers wrong, and the business risks not just bruised balance sheets, but potentially losing access to crucial funding.
If you’d like to understand how the FRS 102 changes may affect your business and explore what actions to take now, Stuart Gardiner from Johnston Carmichael is offering no-obligation 30-minute consultations for Dynamo members. Contact 07854 862146 or stuart.gardiner@jcca.co.uk.
