FRS 102 and the cost of staying manual

By 2026, the Financial Reporting Council (FRC) estimates that millions of businesses across the UK and Ireland will face their most significant accounting shift in years as the revised FRS 102 becomes mandatory.  The new rules, which bring lease accounting closer to the IFRS 16 standard, demand that most leases appear as right-of-use (RoU) assets and liabilities on the balance sheet.  

The stakes are high. Missteps in lease accounting can lead to financial penalties, audit scrutiny, and reputational damage. With the complexity and scale of this transformation, businesses must be properly equipped to meet the demands of this new era. Yet, many still rely on outdated tools, manual processes, and spreadsheets. 

The Problem with Spreadsheets  

Spreadsheets have served as a dependable workhorse for lease accounting, but the cracks in their utility are hard to ignore in today’s regulatory landscape. Their limitations, particularly under the revised FRS 102, are not just inconvenient—they’re sometimes risky. 

Manual processes are prone to human error, such as missed updates or incorrect formulas, which can cascade into reporting inaccuracies. These errors aren’t trivial: they could attract auditor scrutiny, erode investor confidence, and even result in financial penalties. 

Lease portfolios are rarely static, with modifications, extensions, and renegotiations requiring constant updates. Spreadsheets lack the flexibility and scalability needed to handle these complexities efficiently. Additionally, the new on-balance sheet model of FRS 102 requires precise calculations for right-of-use (RoU) assets and liabilities—tasks that quickly overwhelm manual methods. 

Relying on spreadsheets to navigate these demands not only drains resources but also places businesses at a competitive disadvantage. Under the revised standard, accuracy and efficiency are non-negotiable. 

The FRS 102 and What It Means for Businesses 

The 2026 revisions to FRS 102 mark a major evolution in how leases are accounted for. While these changes improve transparency and comparability, they also introduce new levels of complexity: 

• On-Balance Sheet Accounting: All leases, except those considered short-term or low-value, must now be recognized on the balance sheet, fundamentally altering the way businesses report financial health. 
• Impact on Key Metrics: Lease expenses will shift from operating costs to depreciation and interest, changing the makeup of EBITDA and affecting how performance is evaluated. 
• Global Alignment: By mirroring IFRS 16, the updates make UK businesses’ financial reports more comparable to those in international markets, increasing investor confidence but also raising expectations for accuracy and consistency. 

Lessons from IFRS 16 

The rollout of IFRS 16 in 2019 offers a valuable playbook for tackling FRS 102, teaching us that these changes can be more challenging than anticipated. For instance, during the implementation of IFRS 16, a survey by PwC found that 55% of businesses encountered unexpected difficulties, from data inconsistencies to overwhelmed teams, due to late preparation and inadequate tools.  

On the other hand, businesses that transitioned smoothly often shared similar approaches: they started early, ensured data quality, embraced technology to handle the complexities of new reporting requirements, and trained staff effectively, avoiding last-minute chaos. 

Another takeaway was the role of technology. Businesses that relied on manual processes struggled to manage the granular requirements of IFRS 16, particularly around the calculation of RoU assets and liabilities. Automated solutions, by contrast, handled these tasks seamlessly while providing the audit trails and reporting capabilities necessary for compliance. 

Finally, collaboration across departments was key. Successful transitions required input from finance, legal, and operations teams to ensure all aspects of lease management were aligned with the new standards.  

Technology: Turning Compliance into Strategy 

While compliance with FRS 102 is mandatory, the tools businesses use to achieve it can determine whether they merely meet the standard or gain strategic benefits in the process: 

• Automation: Automated systems eliminate the risk of human error, handling calculations for RoU assets and lease liabilities with precision. 
• Centralized Data Management: A centralized system offers real-time visibility into lease portfolios, enabling organizations to identify inefficiencies, renegotiate contracts, and uncover cost-saving opportunities. Automation not only eliminates the risk of human error but also frees up accounting teams to focus on higher-value tasks, such as financial planning and strategy. 
• Seamless Integration: Connecting lease accounting and management software with ERP systems ensures consistency and streamlines workflows. 
• Advanced Reporting: Modern solutions generate accurate, detailed disclosures that not only meet regulatory requirements but also support better decision-making.

By embracing technology, businesses can move beyond compliance, leveraging their lease data to identify cost-saving opportunities, optimize asset utilization, and build investor confidence. 

For businesses seeking practical advice, the IRIS guide offers detailed insights to navigate the transition effectively. 

A Smarter Path Forward? 

The countdown to FRS 102 is on. For UK businesses, the question isn’t whether to modernize lease accounting—it’s how to do it effectively. By embracing automation, centralization, and integration, organizations can meet regulatory demands while positioning themselves for sustained success. 

Spreadsheets may have had their time, but the future belongs to technology. And with FRS 102 just around the corner, there’s no better time to make the leap. 

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