FRS 102 lease accounting changes are coming: is your business ready?

Businesses reporting under FRS 102 will need to prepare for one of the biggest changes to lease accounting in recent years. The revised rules introduce a new approach that brings most leases onto the balance sheet, replacing the long-standing distinction between operating and finance leases for lessees.

The changes apply to accounting periods beginning on or after 1 January 2026. For most  businesses, the first period affected will be their 2026 or 2027 accounts.

Under the new requirements, businesses will recognise a right of use asset and a corresponding lease liability for qualifying leases for most of their major leases. While the change won’t affect the amount of cash paid under a lease agreement, it could significantly alter how a business appears on paper. Reported debt may increase, key performance measures could change and, for some businesses, audit requirements may also be affected.

For business owners and finance teams, the challenge is not simply understanding the accounting treatment. It’s understanding the wider implications for lenders, investors, stakeholders and future decision-making.

Why should you be looking at this now?

Although the new requirements may not appear in your next set of accounts, businesses should start preparing now. Identifying leases, assessing available exemptions and understanding the potential impact on financial reporting, banking covenants and audit requirements can take longer than many organisations expect.

The earlier you start, the easier it will be to plan, avoid surprises and ensure a smooth transition.

More than an accounting exercise

In our experience, changes such as these often have consequences far beyond the finance function. Increased liabilities, changes to EBITDA and greater visibility of lease commitments can all influence how a business is viewed by lenders and other stakeholders.

That’s why we’re encouraging businesses to take stock of their lease arrangements now and understand where the greatest areas of impact are likely to be.

Download our practical guide

To help businesses prepare, we’ve produced a practical guide to the new FRS 102 lease accounting requirements. It covers:

• What is changing and why it matters
• Which leases qualify for exemption
• The potential impact on financial statements and covenants
• Key implementation considerations
• More complex lease arrangements and scenarios

The guide is designed to give businesses a clear understanding of the changes and the practical steps they should be considering now.

Need advice on how the changes could affect your business?

Every business has a different lease profile, so the impact of the new rules will vary. If you’re unsure what the changes could mean for your accounts, banking arrangements or audit requirements, we’re here to help.

Download our practical guide or contact me directly for an initial discussion about how your business can prepare for the transition. Our business advisory and audit engagement teams are also primed to discuss this. We can help you assess the likely impact, identify any risks, develop a practical plan ahead of implementation and provide tools and support to help with the transition.