Let’s unpick this legislation in more detail:
From 1 January 2026, a new standard for revenue recognition will come into force and it’s something every business should be paying close attention to.
This isn’t just a technical accounting update. It’s a structural change to how revenue is reported across all customer contracts and one that could fundamentally alter how financial performance is tracked and understood.
What’s changing?
All businesses will now be required to apply a new five-step model for recognising revenue. This approach is designed to bring greater consistency, transparency, and comparability across industries but it also requires a more detailed understanding of customer contracts and how value is delivered.
The five steps are:
- Identify the contract with the customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations
- Recognise revenue when (or as) performance obligations are satisfied
At a glance, it looks straightforward. In practice, however, the detail matters and that’s where the complexity begins.
Where it gets challenging
The areas most likely to create difficulty and scrutiny are:
- Contract modifications: If a contract is amended mid-way, how do you treat the change in value or scope?
- Variable consideration: Discounts, rebates, performance bonuses all need to be estimated and factored in, sometimes before they’re confirmed.
- Performance obligations: When is a service ‘delivered’? What constitutes satisfaction of a contract term? Revenue may now need to be recognised over time rather than at a point in time or vice versa.
For businesses with bundled offerings, milestone-based projects, or multiple contract lines, this can quickly become a highly technical and judgement-driven exercise.
What’s the impact?
This change affects more than your finance team. It can alter the timing of when revenue is recognised – meaning your income statement might look very different from one year to the next.
Key areas of impact include:
- Internal reporting: Revenue patterns could shift, impacting KPIs and performance dashboards.
- Bonus structures: Targets and incentive schemes tied to revenue will need to be revisited.
- Investor communications: Revenue growth may look different depending on contract structures.
- Systems and processes: Many businesses will need new controls and tools to apply the model consistently.
What should businesses be doing now?
- Review your contracts: Understand the terms, deliverables, and conditions and how they map against the new model.
- Assess the impact: Model different scenarios to see how revenue recognition changes over time.
- Update your systems: Ensure your finance and CRM tools can capture and apply the five-step model accurately.
- Educate your teams: This isn’t just a finance issue it touches sales, operations, and leadership.
At Wilson Partners, we’re working with clients to get ahead of the change not just to ensure compliance, but to help them understand the strategic implications.
Because when the way you recognise revenue changes, so does the way you make decisions.
If you’d like to explore how this could impact your business or how to prepare for the transition we’re here to help.
