Project Accountant: The New FRS 102 Rule Most Project-Based Businesses Haven’t Applied Yet
UK GAAP’s contract revenue recognition rules changed fundamentally from 1 January 2026. The revised FRS 102 Section 23 replaces the previous approach with a five-step model aligned to IFRS 15 — the same international standard already used by larger listed companies. For any business delivering long-term projects, from construction contracts to multi-month IT implementations, this changes how and when revenue can actually be recognised on the accounts, and a genuinely large number of project-based businesses haven’t updated their processes for it yet.
This guide covers what a specialist project accountant actually does, what changed with FRS 102 Section 23, how WIP and percentage-of-completion accounting actually work, and what specialist support typically costs.
Quick Answer
A project accountant tracks costs, revenue, and profitability on a project-by-project basis for businesses delivering long-term contracts — construction, IT implementation, engineering, and consultancy work where billing, cash, and earned revenue rarely happen at the same time. From 1 January 2026, the revised FRS 102 Section 23 governs how UK businesses recognise revenue on these contracts, using a five-step model aligned with IFRS 15 rather than the previous approach — a genuinely significant change for any business with contracts spanning the transition. Work in Progress (WIP) accounting, typically using the percentage-of-completion method, remains the core mechanism for reflecting earned revenue before final invoicing, but the new standard changes some of the detail behind how that calculation is justified. Fees typically run £400–£1,500 a month depending on project volume and contract complexity.
Key Takeaways
- From 1 January 2026, revised FRS 102 Section 23 governs UK GAAP contract revenue recognition using a five-step model aligned with IFRS 15 — a fundamental change from the previous approach.
- Work in Progress (WIP) represents the value of work completed but not yet invoiced, most commonly calculated using the percentage-of-completion method: costs incurred divided by total estimated costs, applied to contract value.
- Overbilling (billed more than revenue earned) and underbilling (earned more than billed) are the two red flags a proper WIP schedule reveals — both signal genuine cash flow or reporting issues if left unaddressed.
- Construction-specific rules layer on top of standard project accounting, including CIS deductions for subcontractor payments.
- UK construction new orders rose 9.8% (£1,078 million) in Q3 2025 versus the previous quarter, reflecting a genuinely active period for project-based construction businesses specifically.
- Typical fees run £400–£1,500 a month, scaling with project volume and contract complexity.
Table of Contents
- What Does a Project Accountant Actually Do?
- The New FRS 102 Section 23: What Changed from 2026
- WIP and the Percentage-of-Completion Method Explained
- Overbilling vs Underbilling: What Your WIP Schedule Reveals
- CIS and Project Accounting for Construction
- Project Accountants Across Sectors
- Project-Based Businesses in London: What We See
- A Worked Example: Reading a WIP Schedule
- How Much Does It Cost?
- Common Mistakes People Make
- Accountant Insights: What We See in Practice
- Do You Need a Specialist Project Accountant? (Decision Framework)
- General Accountant vs Project Accounting Specialist
- Checklists
- FAQs
- Sources
- Final Thoughts
What Does a Project Accountant Actually Do?
Beyond standard company accounts, a project accountant tracks costs and revenue at the individual contract level, maintains WIP schedules that reflect true project progress, identifies overbilling or underbilling before it becomes a cash flow problem, and — for accounting periods from 2026 onward — applies the new FRS 102 five-step revenue recognition model correctly across every active contract, not just at year end.
The New FRS 102 Section 23: What Changed from 2026
This is the change most project-based businesses haven’t fully absorbed yet. UK GAAP’s revenue recognition standard, FRS 102 Section 23, was substantially revised, with the update taking effect for accounting periods beginning on or after 1 January 2026. The previous version allowed a more straightforward approach to recognising revenue on long-term contracts; the revised standard replaces this with a structured five-step model — identifying the contract, identifying separate performance obligations within it, determining the transaction price, allocating that price across the obligations, and recognising revenue as each obligation is satisfied — aligned closely with the international IFRS 15 standard already used by larger companies.
For a genuinely simple, single-obligation contract, the practical difference may be modest. For contracts bundling several distinct deliverables — a construction contract combining design, build, and aftercare, for instance, or an IT implementation combining software licensing, configuration, and ongoing support — the new standard requires those elements to be identified and accounted for separately, potentially changing both the timing and the amount of revenue recognised at any given point. Businesses with contracts that started before the transition and continue into 2026 need this reviewed specifically, since applying the old approach to periods now governed by the new standard risks materially misstating project revenue.
WIP and the Percentage-of-Completion Method Explained
Work in Progress exists to solve a basic timing problem: on a long project, work is earned, invoiced, and paid for at three different points in time, and waiting until final invoicing to recognise any revenue would make interim financial statements meaningless. The most common solution is the percentage-of-completion method: divide costs incurred to date by total estimated costs to get a completion percentage, then apply that percentage to the total contract value to determine revenue earned so far. Incur £250,000 of costs on a £1,000,000 budgeted contract, and the project is treated as 25% complete — with 25% of contract revenue and gross profit recognised at that point, regardless of what’s actually been invoiced or collected to date.
Overbilling vs Underbilling: What Your WIP Schedule Reveals
A properly maintained WIP schedule surfaces two specific warning signs. Overbilling occurs when the amount invoiced to a client exceeds the revenue actually earned under the percentage-of-completion calculation — meaning cash has come in ahead of the work justifying it, which can mask an underlying profitability problem if the remaining work costs more than expected. Underbilling is the reverse: more revenue has been earned than has been billed, meaning cash flow is lagging behind genuinely completed work — a situation that can create real short-term cash pressure even on a fundamentally profitable project. Neither is inherently a crisis, but both need active management rather than being left to resolve themselves, since either pattern left unchecked across multiple concurrent projects can seriously distort a business’s actual cash position.
CIS and Project Accounting for Construction
Construction-sector project accounting carries an additional layer most other industries don’t: the Construction Industry Scheme, requiring contractors to deduct tax from subcontractor payments (generally 20% for registered subcontractors, 30% for unregistered ones) and report these deductions to HMRC. This sits alongside, not instead of, standard WIP and revenue recognition — a construction project accountant needs to track CIS deductions accurately at the same time as maintaining the underlying WIP schedule for the contract itself, since the two systems serve genuinely different purposes but both apply to the same underlying project.
Project Accountants Across Sectors
While construction is where WIP accounting is most visibly discussed, the same underlying challenge — earning, billing, and cash arriving at different times — applies just as directly to architecture and engineering firms working through project phases and milestones, IT and software consultancies delivering multi-month implementations, and management consultancies billing against project stages rather than simple time-and-materials arrangements. Each sector layers its own specific conventions on top of the same core percentage-of-completion mechanics.
Project-Based Businesses in London: What We See
UK construction new orders rose 9.8% (£1,078 million) in Q3 2025 alone compared to the previous quarter, with London’s construction and major infrastructure activity contributing disproportionately to that growth given the concentration of large-scale commercial and residential development in and around the capital. For London-based construction, engineering, and consultancy businesses running multiple concurrent projects, the combination of genuinely active order books and the newly revised FRS 102 Section 23 makes accurate WIP and revenue recognition more consequential than it’s been in some time — a business with several large contracts straddling the January 2026 transition has considerably more at stake in getting the new standard applied correctly than one running a single small project.
A Worked Example: Reading a WIP Schedule
Illustrative Example: Say a contractor is working on a £600,000 fit-out project, having incurred £180,000 of costs against a total estimated cost of £480,000 — a 37.5% completion level. Under the percentage-of-completion method, £225,000 of revenue (37.5% of £600,000) should be recognised at this point. If the contractor has actually invoiced the client £280,000 so far, that’s overbilling of £55,000 — cash received ahead of work genuinely completed, which needs factoring into cash flow planning since a chunk of that money isn’t yet “earned” in accounting terms, even though it’s sitting in the bank.
Illustrative Example: A different project accountant reviewing a multi-element IT implementation contract that started in 2025 and continues into 2026 needs to reassess it under the new FRS 102 Section 23 five-step model — separately identifying the software licensing, configuration, and ongoing support elements bundled into the original contract, and allocating the transaction price across each rather than treating the whole contract as a single revenue stream the way the previous standard permitted.
How Much Does It Cost?
£300 – £600 / month
£600 – £1,200 / month
£700 – £1,500 / month
£500 – £1,500 one-off
£1,500 – £4,000+ / month
Common Mistakes People Make
1. Applying the old FRS 102 approach to 2026 contracts
Why it happens: The previous method has been used for years, and the January 2026 change is recent enough to be missed.
Consequence: Revenue recognised at the wrong time or amount, misstating project profitability.
How to avoid it: Confirm your accountant is applying the revised five-step model for accounting periods from 2026 onward.
2. Not maintaining a regular WIP schedule
Why it happens: WIP tracking can feel like extra admin on top of day-to-day project delivery.
Consequence: Overbilling or underbilling going unnoticed until it becomes a genuine cash flow problem.
How to avoid it: Update WIP schedules on a regular cycle, not just at year end.
3. Treating overbilling as simply “good cash flow”
Why it happens: Cash in the bank feels like unambiguously good news.
Consequence: Masking a genuine profitability problem if the remaining project work costs more than budgeted.
How to avoid it: Reconcile billing against earned revenue regularly, not just against invoices issued.
4. Not separating distinct deliverables within a single contract
Why it happens: A single contract with one overall price can feel like it should be accounted for as one thing.
Consequence: Incorrect revenue recognition timing under the new FRS 102 five-step model, which requires separate performance obligations to be identified.
How to avoid it: Review multi-element contracts specifically for distinct obligations requiring separate treatment.
5. Confusing CIS deductions with standard project revenue recognition
Why it happens: Both systems apply to the same construction project simultaneously.
Consequence: Errors in either CIS reporting or WIP accounting from treating them as a single combined process.
How to avoid it: Track CIS deductions and WIP calculations as separate, parallel processes for the same project.
Accountant Insights: What We See in Practice
- The FRS 102 Section 23 transition is, in our experience, still not fully understood by many project-based businesses — it’s a genuinely technical accounting standard change that doesn’t get the same attention as tax rule changes.
- Businesses running multiple concurrent projects benefit disproportionately from regular, disciplined WIP reporting — the risk of overbilling or underbilling compounding across several projects at once is considerably higher than with a single contract.
- Construction clients juggling CIS and WIP accounting simultaneously see the most value from a specialist who tracks both systems properly, rather than treating one as an afterthought to the other.
- Multi-element contracts — bundling licensing, implementation, and support, for instance — are where the new FRS 102 model makes the biggest practical difference compared to the previous approach.
- Regular WIP reviews, not just year-end reconciliation, consistently catch overbilling and underbilling before they become genuine cash flow problems.
Do You Need a Specialist Project Accountant?
Step 1: Confirm your revenue recognition approach reflects the 2026 FRS 102 change. Particularly for contracts spanning the transition.
Step 2: Set up or review your WIP schedule process. Regular updates catch issues before they compound.
Step 3: Check for overbilling or underbilling across active projects. Both signal something worth addressing.
Step 4: Review multi-element contracts for separate performance obligations. The new standard requires this specifically.
Step 5: Choose based on genuine project accounting experience. WIP, percentage-of-completion, and the FRS 102 transition all need current, specialist knowledge.
General Accountant vs Project Accounting Specialist
| Option | Advantages | Disadvantages | Best For |
|---|---|---|---|
| General accountant | Often cheaper; fine for a business with no long-term contracts | May not maintain proper WIP schedules or apply the new FRS 102 model correctly | A business with short, simple transactions and no multi-month projects |
| Project accounting specialist | Maintains WIP properly, applies FRS 102 Section 23 correctly, catches over/underbilling | Higher fee than a generalist | Any business delivering long-term contracts, projects, or multi-element deliverables |
Checklists
Checklist 1: FRS 102 Transition Review
- ✓ Identify contracts spanning the 1 January 2026 transition
- ✓ Review multi-element contracts for separate performance obligations
- ✓ Confirm the five-step model is being applied for 2026 periods
- ✓ Update internal revenue recognition policies accordingly
Checklist 2: Ongoing WIP Management
- ✓ Update WIP schedules on a regular cycle, not just at year end
- ✓ Reconcile billing against earned revenue for every active project
- ✓ Flag overbilling and underbilling as they arise, not retrospectively
- ✓ Track CIS deductions separately if in construction
FAQs
What changed with FRS 102 Section 23 in 2026?
From 1 January 2026, UK GAAP’s contract revenue recognition standard moved to a five-step model aligned with IFRS 15, replacing the previous approach.
What is WIP in project accounting?
Work in Progress represents the value of work completed on a project but not yet invoiced, typically calculated using the percentage-of-completion method.
How does the percentage-of-completion method work?
Costs incurred to date are divided by total estimated costs to determine a completion percentage, which is then applied to the total contract value to calculate revenue earned so far.
What is overbilling?
When the amount invoiced to a client exceeds the revenue actually earned under the percentage-of-completion calculation, meaning cash has arrived ahead of the work justifying it.
What is underbilling?
The reverse of overbilling — more revenue has been earned than has been billed, meaning cash flow lags behind completed work.
Does the Construction Industry Scheme affect project accounting?
Yes — CIS deductions on subcontractor payments run alongside, but separately from, standard WIP and revenue recognition for construction projects.
Do IT and consultancy businesses need project accounting too?
Yes — any business delivering long-term contracts where billing, cash, and earned revenue happen at different times benefits from the same core WIP principles.
How much does a project accountant cost?
Typically £300–£1,500 a month depending on project volume and complexity, rising for larger firms needing full outsourced project accounting.
Do existing contracts need reviewing for the FRS 102 change?
Yes, particularly multi-element contracts spanning the January 2026 transition — applying the old approach to periods now governed by the new standard risks misstating revenue.
What happens if WIP isn’t tracked properly?
Overbilling or underbilling can go unnoticed, distorting both reported profitability and actual cash flow across active projects.
Sources
- Financial Reporting Council — FRS 102 Section 23: Revenue
- GOV.UK — Construction Industry Scheme (CIS)
- Office for National Statistics — Construction new orders statistics
- IFRS Foundation — IFRS 15: Revenue from Contracts with Customers
Accounting standards and construction industry rules are set by the Financial Reporting Council and HMRC and subject to change — always confirm current requirements before relying on this information.
Final Thoughts
Project-based businesses live and die by the gap between when work is earned, when it’s billed, and when cash actually arrives — and the revised FRS 102 Section 23, effective from January 2026, changes some of the technical detail behind how that gap gets reflected in the accounts. Properly maintained WIP schedules, disciplined overbilling and underbilling checks, and correct application of the new five-step revenue recognition model together give a genuinely accurate picture of project profitability, rather than one that only becomes clear once a project has fully wrapped.
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