From January 2026, the revised FRS 102 will bring most leases onto balance sheets for the first time, reshaping how millions of UK and Irish companies report, plan, and communicate their financial position.
In Partnership with IRIS
From January 2026, the revised FRS 102 will overhaul lease accounting in the UK and Ireland, bringing most leases onto balance sheets for the first time.
The scale of the change is hard to overstate. FRS 102 governs reporting for more than 3.4 million companies across the UK and Ireland, making it the most widely applied accounting standard in the region. Retailers with long property portfolios, logistics operators running large fleets, and service businesses reliant on technology leases will see material shifts in reported results. Even firms with fewer lease commitments will need to revisit how they gather data, run processes, and communicate with stakeholders.
For regulators, the driver is transparency. Investors, lenders, and boards will gain a clearer view of long-term obligations, with fewer liabilities kept off the balance sheet. For companies, however, the change brings both challenge and opportunity. It will require new levels of data discipline and more resilient systems, but it also creates a chance to strengthen governance, sharpen decision-making, and improve how lease commitments are managed.
With the effective date just months away, the close of 2025 offers only a narrow window to act. Preparation in 2025 will determine whether the transition is a last-minute scramble or a controlled, well-planned shift. What follows is a practical checklist of the areas that deserve attention before the rules take hold.
The Financial Reporting Council finalised its amendments in March 2024 after a wide-ranging review of UK accounting standards. The most significant update is the adoption of a single lessee model in Section 20, which removes the distinction between operating and finance leases. From 2026, almost all leases will be recognised as right-of-use assets with matching liabilities.
This matters because FRS 102 applies well beyond listed companies, covering owner-managed businesses, private-equity backed groups, and subsidiaries alike. The breadth of coverage means the impact will cut across sectors. A retailer with dozens of stores on long leases will see material changes in leverage. A professional services firm leasing laptops and office space will need to capture commitments previously handled informally.
Reliefs for short-term and low-value leases will soften the effect but will not remove the need for significant preparation.
Lease capitalisation does not alter cash flows, but it does alter performance metrics. Costs once booked as operating expenses will be split into depreciation and interest, lifting EBITDA while increasing reported debt and reducing interest cover.
Recent academic research offers a timely indication of scale. A 2025 study by Lopes and Penela, cited in the IASB’s Post-Implementation Review of IFRS 16, analysed 74 European companies and found that assets rose on average by 18.6 percent, liabilities by 31.3 percent, and EBITDA by 17.3 percent, with leverage ratios also moving upward.
The effects were most pronounced in lease-intensive industries such as retail, transport, and hospitality, though even lighter users saw visible shifts in headline metrics.
Running scenarios in 2025 allows organisations to anticipate how covenants, credit ratings, or incentive plans tied to EBITDA will respond. Bridge analyses that reconcile old and new reporting views help boards and lenders understand the transition, while sensitivity testing highlights which leases carry the greatest weight.
In past transitions, data quality has been the stumbling block. Lease agreements are often scattered across legal, procurement, and finance teams, stored in multiple formats, or missing key terms. A PwC survey (2019) after IFRS 16 found that 55 percent of companies faced unexpected challenges in data collection, while 72 percent said their chosen system lacked full functionality because of incomplete datasets.
2025 is the moment to impose discipline. Every lease should be captured in a central register, recording start and end dates, renewal options, indexation clauses, variable payments, and discount rates. Embedded leases in service contracts, another common pitfall, need to be identified early. A validated register not only supports compliance but also reduces audit queries and gives managers a clearer view of long-term commitments.
Spreadsheets may suffice for disclosure notes, but they falter under the weight of day-two accounting. Modifications, remeasurements, and reassessments will become regular features once leases are capitalised. Companies that relied heavily on spreadsheets during IFRS 16 often faced inefficiencies and elevated error risk after the standard went live.
Mapping the lease lifecycle -from initiation and approval through to remeasurement and disclosure – shows where manual steps create bottlenecks. Redesigning processes in 2025 allows future systems to be built around real workflows and embeds stronger controls ahead of time.
Technology will be central to compliance. The revised FRS 102 requires systems that can automate recognition, measurement, and disclosure, handle modifications, and produce audit-ready logs. Effective solutions should integrate with ERP and finance platforms and accommodate multiple entities. But… implementation is not instant.
Cleansing data, configuring systems, and running parallel tests can take months, a point repeatedly emphasised in firm guidance issued during 2024 and 2025.
Early movers will not only reduce compliance risk but also use these tools to generate insight, from identifying underutilised assets to supporting lease-versus-buy analysis.
Lease accounting changes will ripple across the organisation. Treasury teams may need to revisit covenant calculations. Procurement may find that lease terms now influence reported ratios. HR and remuneration committees may need to reconsider performance metrics tied to EBITDA. Investors and analysts reviewing IFRS 16 adoption expected more management commentary when ratios moved significantly, underscoring the value of clear communication.
The transition should not be seen as a compliance exercise alone. Once leases are captured in a single register and supported by reliable systems, the same data can be used to sharpen negotiations, improve asset utilisation, and strengthen forecasting. Firms that use 2025 to build these capabilities will not just meet the new disclosure rules; they will step into 2026 with a clearer view of their obligations and greater confidence in the decisions that flow from them.
The revised FRS 102 is more than a technical update. It changes how companies will appear on paper and how stakeholders will judge them. Using 2025 to model impacts, centralise lease data, modernise processes, invest in systems, and communicate across the business will ensure that when the standard takes hold in 2026, the story told is one of readiness and control rather than last-minute reaction.
Discover the essential steps and proven strategies companies can adopt to navigate the updated FRS 102 lease accounting standard in this comprehensive guide.