Accounting standards are changing: why recruitment business owners should care

Changes to accounting standards are probably not high on the priority list for most recruitment business owners. But the latest changes to FRS 102 are worth paying attention to.

For some recruitment businesses, the changes could affect when revenue and profit are reported, EBITDA, key performance indicators and what appears on the balance sheet. This could have knock-on implications for bonuses, banking covenants, investor reporting and discussions around business value.

The changes apply for accounting periods beginning on or after 1 January 2026, so businesses should be considering the impact now.

Revenue could be recognised differently
Recruitment businesses often have several different revenue streams, from permanent and temporary placements to retained search and RPO arrangements.

Under the revised FRS 102, businesses will need to look more closely at what they have promised to deliver to a client, when that service has been delivered and therefore when revenue should be recognised.

Permanent placements and retained search arrangements could require particular attention. For retained search, for example, receiving a retainer will not necessarily mean it can immediately be recognised as revenue.

Rebate clauses will also need to be considered, as businesses may need to estimate expected rebates when determining the revenue recognised.

For temporary recruitment businesses, the timing of revenue may not change significantly, but businesses should consider whether they are acting as principal or agent, as this can affect whether revenue is reported gross or net.

Why should a business owner care?
Because a change in accounting does not necessarily mean there has been a change in the underlying business.

Different revenue recognition could affect reported profitability, forecasts, commission and bonus calculations, earn-outs, banking covenants and investor reporting.

This distinction is particularly important when looking at EBITDA and business valuations.

The new lease accounting rules will bring many leases onto the balance sheet, including potentially office property, serviced offices, vehicles and equipment. This can affect EBITDA as well as gearing and leverage ratios.

In some cases, reported EBITDA may increase purely because of the change in accounting treatment. That does not mean the business has suddenly become more profitable in an economic sense, generated more cash or increased in value.

For recruitment businesses considering investment, refinancing or a future sale, it will therefore be important to distinguish between growth in underlying trading performance and movements caused simply by the new accounting rules.

What should businesses be doing now?
Business owners don't need to become accounting experts, but they should understand whether the changes will affect the numbers they use to run and assess their business.

Now is the time to review key revenue streams and contracts, particularly permanent placements, retained search and rebate arrangements, as well as leases. Businesses should also consider the impact on KPIs, forecasts, banking covenants and management reporting.

The important thing is to understand the impact before the first year-end under the new rules. That gives businesses time to explain any changes to lenders, investors, employees and other stakeholders and, crucially, to make sure an accounting change isn't mistaken for a change in underlying business performance