FRS 102 Lease Accounting Changes in 2026: A Finance Director’s Evidence Checklist

Revised FRS 102 lease accounting is a reporting change, but the difficult work usually starts outside the ledger. Property contracts sit with legal, vehicle agreements with operations and equipment arrangements with procurement. Finance cannot produce a reliable calculation until it knows which agreements exist and what they contain. For a PE-backed group, an incomplete lease population can affect the accounts, management reporting and conversations with lenders.

Confirm the framework and the reporting period

The principal Periodic Review 2024 amendments apply to accounting periods beginning on or after 1 January 2026, with early application permitted. That is a period-start test, not a requirement triggered simply by signing accounts during 2026. Revised Section 20 introduces a lessee model proportionately aligned with IFRS 16, but FRS 102 has its own requirements and simplifications. Do not assume an IFRS 16 spreadsheet is suitable without checking it against the applicable UK GAAP requirements.

Establish a complete lease population

Ask each operational owner for signed agreements, extensions, side letters and changes to payment schedules. Reconcile the resulting register to rent and hire expenses, recurring payments and procurement records. Include arrangements described as services where use of an identified asset may require a closer accounting assessment. Keep a record of contracts reviewed and the reasons for inclusion or exclusion. A blank entry should never mean nobody checked.

Make assumptions reviewable

For each relevant contract, record commencement information, payment terms, options and the evidence supporting the lease term and discount rate used. Decisions about renewal options should reflect the applicable requirements and the actual commercial circumstances, not a blanket policy that every renewal will be taken. Document any available exemption that management elects to use and retain the rationale. Keep preparer and reviewer responsibilities explicit.

Build the transition evidence file

Retain the accounting policy, transition decisions, contract register, calculation version and reconciliation of opening balances. Explain how the journal entries tie to the supporting model. Where a specialist or software provider calculates the numbers, finance still needs to understand the inputs and review the output. Protect the final version from uncontrolled changes and retain a record of subsequent corrections.

Explain the effects before year-end

Prepare a bridge showing how the changes affect reported assets, liabilities and performance measures. Review lender definitions rather than assuming accounting changes automatically alter covenant calculations; the financing agreement determines that answer. Give the board a concise summary of the treatment, unresolved judgements and implementation risks. A change in presentation is not itself a change in the underlying cash commitments.

A practical next step

Choose one material property lease and trace it from the signed contract through the register, calculation, review and ledger entry. If that chain cannot be followed, resolve the process gap before scaling the exercise across the group. This article is general information; the correct treatment depends on the reporting framework, period and contract terms.

Source: https://www.frc.org.uk/library/standards-codes-policy/accounting-and-reporting/uk-accounting-standards/frs-102/