The Financial Reporting Council (FRC) has finalised amendments to FRS 102, introducing a new lease accounting model that becomes mandatory for financial reporting periods beginning on or after 1 January 2026. Early adoption is permitted, provided all amendments from the Periodic Review are applied together.
As organisations move into periods covered by the revised standard, finance teams should ensure they have a clear plan for transition. A structured approach helps avoid pressure and supports a smooth adoption.
Why Was FRS 102 Updated?
The FRC has rewritten Section 20 to reflect IFRS 16 principles, aligning FRS 102 with global best practice while maintaining proportionality for UK GAAP entities.
There are three core drivers behind the change:
1. International comparability
UK organisations frequently benchmark against IFRS reporters. Aligning the lease model improves comparability for lenders, investors and group consolidations.
2. Enhanced transparency
Operating leases have long masked an organisation’s true liability profile. Recognising right-of-use assets and lease liabilities improves insight into capital commitments and financial risk.
3. Reduced complexity over the long term
While the initial transition raises the workload, the move to a single lessee accounting model simplifies future-period accounting by removing the operating vs finance distinction for lessees.
What is the Modified Retrospective Approach?
Most companies are expected to transition at the start of their financial year, beginning on or after 1 January 2026. This transition date is commonly referred to as the Date of Initial Application (DIA).
For example, companies with a December year-end will transition on 1 January 2026, while those with a June year–end will transition on 1 July 2026.
Under the Modified Retrospective approach:
- Right-of-use assets and lease liabilities are recognised at the DIA.
- Right-of-use assets are typically measured at an amount equal to the calculated lease liability, adjusted for any existing lease prepayments or accruals.
- Companies already performing IFRS 16 dual reporting for consolidation may use their existing right-of-use asset balances, with any cumulative impact recorded in opening equity.
How Should Finance Teams Prepare for the FRS 102 Transition?
To ensure smooth adoption, organisations should focus on the following high-impact areas.
1. Align Departmental Coordination for FRS 102
Lease data is rarely owned by Finance alone. A complete transition requires visibility across several teams:
- Finance: Discount rates, payment data, modelling and disclosures
- IT: Infrastructure contracts, software licences, hardware leases
- Procurement: Equipment, fleet and telecoms agreements
- Estates / Facilities: Property leases, break options, rent reviews
- Reporting & Audit Teams: Journals, supporting documentation, controls
Establishing ownership and communication early prevents missing leases and inconsistencies after transition.
2. Compile a Complete FRS 102 Lease Inventory
Identify all departments with lease-related contracts and appoint key contacts to gather documentation. This includes:
- Property leases
- Equipment and fleet leases
- Service contracts containing embedded leases
- Software and hardware agreements
- Vendor-financed assets
A complete inventory is essential for accurate opening balances.
3. Start Collating All Required Leasing Data Points
For many companies, this is the most time-consuming part of the transition. FRS 102 now requires several data elements that were never captured under the old operating-lease model. Each lease must be reviewed individually.
Key data points include:
- Lease term – including any extension or early termination options on the lease that are reasonably certain to occur.
- Discount rate – this may be the interest rate implicit in the lease (common in vehicle leases), or if unavailable, an incremental or obtainable borrowing rate (commonly used for property leases).
- Lease payment profile, including:
- Fixed lease payments including profiles with fixed percent changes (e.g., lease payment rising 2% per year).
- Variable lease payments based on an index or rate (kept flat for liability calculations; no forecasting).
- Any lease incentives to be received.
- Make-good or asset-retirement obligations – costs associated with returning a leased asset back to its original condition need to be estimated.
- Other contractually obligated or reasonably certain payments – such as return fees, balloon payments, guaranteed residual value differences, and/or purchase option exercise prices.
Early data mobilisation significantly de-risks the transition.
4. Choose the Right FRS 102 Lease Accounting Software Early
The revised model makes spreadsheets increasingly impractical. Software should provide:
- Role-based access controls
- AI-assisted lease capture
- IFRS-style flexibility for remeasurements and modifications
- Fast implementation timelines
Selecting your platform early reduces risk and accelerates data validation.
5. Attend FRS 102 Industry Webinars and Training
Stay informed through technical updates from:
Training ensures departments understand their obligations and auditors receive consistent, well-supported information.
Are You Set Up for a Smooth FRS 102 Transition?
If you’re looking for a lease accounting software built specifically for the revised FRS 102 lease model, try OneTouch Leasing.
Our platform offers:
- AI-assisted lease capture for fast, accurate onboarding
- Flexible lifecycle management for modifications, renewals and renegotiations
- Full support for the revised FRS 102 lease accounting model
- Implementation in as little as two weeks
- Customisable workflows and role-based access
- Audit-ready reporting and complete documentation trails
See how OneTouch Leasing can support smoother adoption.
