With the revised Section 20 of FRS 102 coming into effect in 2026, affected businesses must choose how to transition into the new lease accounting model. For most UK GAAP reporters, the modified retrospective approach will be the most proportionate and operationally efficient route.
This guide explains how the approach works, its key features, and when it is likely to be the most appropriate choice.
What Is the Modified Retrospective Approach Under FRS 102?
The modified retrospective approach applies the revised lease accounting model from the transition date (for organisations with a December year end, this will be 1st January 2026) without restating prior periods.
Under this approach:
- Comparative figures remain unchanged
Prior-year financial statements continue under the old FRS 102 lease accounting model. - The cumulative effect (if any) is recorded directly in the opening equity
No retrospective journals are posted to prior periods. - This provides a clean, auditable entry point into the revised FRS 102 lease accounting requirements without reconstructing historic lease data.
Key Features of the Modified Retrospective Approach under FRS 102
The modified retrospective approach centres on applying the new lessee accounting model from a single point in time, supported by several transition features:
1. No Restatement of Prior Periods
Financial statements for earlier years remain unchanged, avoiding the need to revisit historic journals or disclosures.
2. Opening Balances Adjusted at Transition
Entities recognise lease liabilities and right-of-use (ROU) assets at the transition date, based on the present value of remaining lease payments and any other reasonably certain obligations (such as return fees or the exercise price of a purchase option).
3. Optional Practical Expedients
To reduce transition workload, companies may elect to:
- use the remaining lease term at transition
- apply a single discount rate to similar leases
- exclude initial direct costs from measuring ROU assets
- use hindsight for lease-term assessment
- set the opening right-of-use asset balance to the lease liability
- use IFRS 16 carrying amounts at transition (where applicable)
These expedients simplify transition and reduce data requirements.
4. Disclosure Requirements
Entities must disclose:
- the transition approach used
- the practical expedients applied
- the impact on financial position at the transition date
These provide transparency for auditors, lenders and stakeholders.
Practical Advantages of the Modified Retrospective Approach
The modified retrospective approach offers several practical advantages for organisations adopting the revised FRS 102 lease accounting model:
Simplifies Transition
Avoids restating historical lease schedules and journals.
Reduces Audit Burden
Auditors focus on transition date balances rather than multi-period testing.
Minimises Operational Disruption
Finance teams can concentrate on forward-looking compliance instead of historical data reconstruction.
For many organisations, these advantages translate into a smoother, more controlled transition into the revised FRS 102 lease model.
Need Support Applying the Modified Retrospective Approach in your FRS 102 Transition?
The modified retrospective method hinges on clean transition-date balances, consistent practical expedients, and audit-ready journals. OneTouch Leasing provides a controlled environment to apply the revised FRS 102 model for leases without the complexity of spreadsheets or manual calculations.
Our platform supports your transition with:
- AI-assisted lease capture built for opening-balance preparation
- Automated ROU asset and lease-liability calculations
- Practical expedients applied consistently across the portfolio
- Clear transition-date journals and supporting documentation
- Rapid onboarding with most teams live within two weeks
For organisations selecting the modified retrospective route, OneTouch Leasing offers an efficient, low-disruption way to move into the revised standard.
