How UK CFOs Should Prepare for FRS 102’s 2026 Lease Overhaul

UK CFOs must recognise most leases on the balance sheet under the Financial Reporting Council’s amended FRS 102, effective for accounting periods starting on or after 1 January 2026.

The change follows the FRC’s 2024 periodic review of FRS 102 and removes the long-standing distinction between operating and finance leases. For any business with a calendar year-end, the new accounting period is already underway — which means the modelling, systems work and board conversations need to happen now, not at year-end close.

What exactly is changing under FRS 102?

Under the previous standard, only finance leases appeared on the balance sheet; operating leases sat in the notes as a future commitment. The amended FRS 102 ends that split. Lessees now recognise a right-of-use asset and a corresponding lease liability for almost every lease, mirroring the approach IFRS 16 introduced for listed groups back in 2019. FRS 102 does build in simplifications: companies can apply an “obtainable borrowing rate” rather than IFRS 16’s more technical incremental borrowing rate, and short-term leases under 12 months and low-value assets remain exempt.

Executive Action:

• Confirm finance has mapped every lease contract, including embedded leases inside service agreements.
• Decide whether to adopt all periodic review amendments together or use the permitted early-adoption route.
• Brief the audit committee on the balance sheet mechanics before the first affected year-end.

Which companies and sectors carry the biggest exposure?

This isn’t a large-company-only change. FRS 102 applies to any UK or Irish entity that doesn’t report under IFRS or the micro-entity regime FRS 105 — from businesses just above the £1m turnover threshold up to the largest private groups. According to Grant Thornton, UK GAAP standards including FRS 102 underpin the statutory accounts of an estimated 3.4 million UK businesses, which gives a sense of how far this reaches beyond the FTSE. Impact will be sharpest for organisations with large lease books: retail, transport and logistics, healthcare and telecoms are consistently named by advisers as the sectors facing the biggest balance sheet shift. This sits alongside other 2026 financial reporting change CFOs are already managing, including the move to IFRS 18 and renewed board scrutiny of capital allocation.

Executive Action:

• Run a lease-by-lease impact assessment now if the business leases property, vehicles or equipment.
• Flag sector-specific exposure to the board, not just the finance function.
• Review lending covenants referencing gearing or EBITDA — new liabilities can change compliance headroom.

How does this change the numbers the board sees?

According to the Financial Reporting Council, the amendments apply for accounting periods beginning on or after 1 January 2026, following its 2024 periodic review of FRS 102. Practically, that means gross assets and liabilities rise, gearing ratios move, and rental charges in the income statement are replaced by depreciation and interest expense — which changes reported EBITDA. Because the transition uses a modified retrospective approach, prior-year comparatives are not restated; instead, CFOs book a one-off cumulative adjustment directly to retained earnings at the date of initial application.

Executive Action:

• Model the covenant and gearing impact before renegotiating or refinancing any facility.
• Prepare a plain-English explanation of the retained earnings adjustment for non-finance board members.
• Align disclosure language early with what auditors will expect to see in the transition note.

What should the CFO’s transition plan look like?

The practical work sits with finance, but the accountability sits with the CFO. A credible plan captures complete lease data, sets a consistent discount-rate methodology, tests general ledger and reporting systems for the new mechanics, and gets the audit committee comfortable well before signing. Businesses that went through IFRS 16 transition in listed groups learned that lease data quality — not the accounting judgement — was the biggest source of delay. UK CFOs now applying FRS 102 have the benefit of that experience and shouldn’t repeat it.

Executive Action:

• Start the lease data-capture exercise this quarter if it hasn’t already begun.
• Agree the discount-rate approach with auditors before it’s applied at scale.
• Use INFORMD’s technology strategy review template (/templates/) to structure the systems and reporting workstream.

Benchmark where the finance function stands today with INFORMD’s executive self-assessment tools (/tools-assessments/), and see how this shift compares with the other reporting changes reshaping the CFO agenda in our briefings library (/resources/).

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Questions about how the FRS 102 changes affect your business specifically? Contact INFORMD. Video briefings on this and other 2026 reporting changes are coming soon (/videos/).

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