Don’t get stuck behind the FRS 102 transition curve

The countdown to FRS 102’s revised lease accounting standards has begun, and for many accountants and finance teams, the transition represents a significant shift in how financial data is collected, analysed, and reported. Effective from January 2026, these changes will bring leases onto the balance sheet, introducing a level of complexity that requires more than just technical adjustments—it demands strategic foresight.

For businesses that rely heavily on leasing arrangements, the implications of these updates extend far beyond compliance. Financial metrics will shift, systems will need reconfiguration, and data gaps could lead to reporting delays. Lessons from IFRS 16 have shown that late preparation often results in rushed decisions, increased costs, and strained resources.

However, those who start planning early have the opportunity to turn this transition into a chance to strengthen their financial reporting processes and governance frameworks.

Navigating the Challenges of FRS 102 Implementation

The implementation of FRS 102 introduces a range of practical challenges that require careful navigation.

At the forefront is the task of ensuring complete and accurate data collation—a cornerstone of compliance. For many businesses, this means revisiting existing lease contracts to identify embedded leases, a process that can be both time-consuming and prone to error. Without a clear picture of lease obligations, the accuracy of financial reporting may be compromised, creating risks that ripple across financial statements.

Beyond data, the revised standard demands greater reliance on qualitative judgment, particularly in the context of lease modifications. Decisions around lease extensions, early terminations, or variable payment terms must now be approached with precision. Such judgments can significantly influence reported liabilities and assets, making consistency and documentation critical.

Interpreting lease contracts presents another layer of complexity. The varied nature of lease agreements, particularly those involving multiple components, often requires a standardised yet flexible approach to ensure compliance. Ambiguities in contract language can create confusion, underscoring the importance of robust internal processes to assess and manage lease terms effectively.

Laying the groundwork for compliance

Addressing the complexities of FRS 102 requires more than a reactive approach. A well-defined compliance strategy can help businesses navigate the challenges with clarity and confidence. Central to this is the establishment of a compliance timeline—an essential tool for managing the transition. Breaking the process into manageable phases allows businesses to prioritise key activities, from initial data collation to finalising disclosures.

Collaboration is equally important. Advisory firms and software vendors play a pivotal role in bridging technical knowledge gaps and ensuring that businesses are equipped to meet the standard. Advisory firms can provide invaluable insights into best practices for interpreting lease contracts, while technology solutions streamline processes, ensuring data integrity and reducing the risks associated with manual reporting methods.

Best practices include forming cross-functional teams that bring together finance, legal, and operations professionals. This approach ensures that lease data is not only accurate but also reviewed from multiple perspectives, reducing the likelihood of oversight. Early engagement with auditors further supports this process, providing an opportunity to address potential concerns before they escalate.

The Importance of Early Action

Time is one of the most valuable resources in the transition to FRS 102. Businesses that begin preparing early are better positioned to manage the inevitable complexities and avoid last-minute challenges that could derail compliance efforts. Early action provides a crucial advantage—not just in meeting deadlines but in doing so with confidence and efficiency.

The experiences of businesses that transitioned to IFRS 16 offer valuable lessons. For instance, organisations that delayed their preparation often struggled with incomplete data, inconsistent processes, and strained resources. In contrast, those that acted early had the time to conduct thorough lease portfolio reviews, refine their data systems, and test new workflows before the changes took effect.

Mobico Group (formerly National Express Group) is an example that demonstrates the benefits of taking early action. They took the proactive approach of selecting an appropriate technology partner to address the complexities of IFRS 16. As a result, they were able to implement a solution tailored to their multifaceted lease portfolio, leading to a more seamless transition process and greater compliance readiness.

“We decided upon IRIS Lease Accounting as our preferred technology partner for transitioning to IFRS 16 as we were seeking a comprehensive end-to-end solution that would support the complexities of our multifaceted lease portfolio.”

Delaying preparation, on the other hand, can lead to significant risks. Businesses may face rushed decisions, higher costs, and increased scrutiny from auditors. In some cases, the reputational damage of delayed or inaccurate financial reporting can have long-lasting consequences, particularly for companies with significant leasing portfolios.

Early preparation is now an essential strategy for managing the complexities of FRS 102. By taking the initiative now, businesses can avoid unnecessary disruption and ensure they are well-equipped to meet the new standards.

To learn more about the necessary steps and effective strategies that companies can use to navigate the revised FRS 102 lease accounting standard, check out the ‘Lease Accounting: A Guide to FRS 102’ guide.

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