The Financial Reporting Council (“FRC”) has made major revisions to sections of FRS 102, “The Financial Reporting Standard applicable in the UK and Republic of Ireland” as part of the “Periodic Review 2024”.
The changes to the standard do not significantly alter the accounting for leases from the perspective a lessor and so this factsheet focuses on the impact on lessee accounting arising from the new Section 20 “Leases”.
For lessees, the distinction between operating and finance leases is removed and, subject to limited exemptions (see Stage 3 below), leased assets and lease liabilities will be included on balance sheet, similar to the finance lease model under the existing version of the standard. The intention of these changes is to provide enhanced and more transparent information for the users of financial statements by better reflecting the assets controlled by the entity and the related liabilities.
This change aligns with, but isn’t identical to, the treatment of leases under IFRS 16 “Leases”, the international accounting standard. FRS 102 includes some important simplifications and “practical expedients” designed to make initial recognition of the requirements simpler to apply than IFRS 16. The most significant are discussed within this factsheet.
The revised standard is effective for accounting periods beginning on or after 1 January 2026, with early adoption permitted.
