Changes to Lease Accounting under FRS 102: IFRS 16 Comes to UK GAAP

The UK Financial Reporting Council (FRC) has announced significant amendments to FRS 102

Changes to Lease Accounting under FRS 102: IFRS 16 Comes to UK GAAP

The UK Financial Reporting Council (FRC) has announced significant amendments to FRS 102, aligning it more closely with IFRS 16 lease accounting principles. These changes mark a substantial shift for businesses reporting under UK GAAP, particularly in how leases are recognised, measured, and disclosed.

Our guide Changes to Lease Accounting under FRS 102 LINK details these upcoming amendments and their implications for UK entities.

Under the current version of FRS 102, leases are classified as either finance leases or operating leases. Finance leases are recorded on the balance sheet, while operating leases are treated as off-balance sheet transactions, with rental expenses recognised in the profit and loss statement.

However, under the new amendments, with an implementation date set for 1 January 2026, effectively all leases will be on the balance sheet that follows a model similar to IFRS 16.

These amendments represent one of the most significant changes to UK GAAP that we’ve seen recently. While the changes will increase transparency and comparability in financial reporting, they will also require businesses to adapt their accounting systems, financial planning, and compliance strategies, especially where bank loan covenant measures may be impacted.

If you are affected, we recommend that you seek professional advice and begin preparations now to help ensure a smooth transition.

Read our guide Changes to Lease Accounting under FRS102, for details of the amendments, their implications, and what you need to do to prepare.

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