For many Financial Services businesses, lease accounting has historically sat in the background. Rent was typically recognised on a straight-line basis, disclosures were relatively familiar, and the real focus sat elsewhere. Under the revised FRS 102, that changes. For accounting periods beginning on or after 1 January 2026, leases move to a predominantly on-balance sheet model, bringing many leases on to the balance sheet as a right-of-use asset with a corresponding lease liability.
This is one of the most significant UK GAAP changes in over a decade. While the revised model is aligned in principle with IFRS 16, it is not identical. There are simplifications and practical expedients, but the direction of travel is clear: firms need better lease data, stronger judgements, and a clearer view of how the changes will affect reporting, disclosures and performance measures.
What’s changing?
The key shift is that the old operating lease versus finance lease distinction for lessees is largely removed. Instead, most leases will now be recognised on the balance sheet. In practice, that means recognising:
- A right-of-use asset representing the leased asset controlled by the business; and
- A lease liability measured by reference to future lease payments.
Why this matters for Financial Services firms
For Financial Services businesses, the issue is not simply whether there is a property lease in place. The revised standard requires firms to think carefully about implementation, which is less about the volume of leases and more about ensuring the office lease has been correctly analysed, including break clauses, rent reviews, incentive periods, dilapidation obligations and appropriate discount rates.
Where are the biggest challenges likely to arise?
While the changes may seem straightforward on paper, there are a few areas where firms are likely to need to spend more time and judgement.
Key pressure points include:
- Identifying what is, or contains, a lease – particularly where contracts include embedded lease arrangements.
- Determining the lease term – including assessing renewal and termination options.
- Selecting the appropriate discount rate – often one of the more judgemental aspects of the new requirements.
- Managing the transition – deciding which practical expedients to apply and ensuring a smooth move to the new standard.
- Preparing for enhanced disclosures and audit scrutiny – making sure systems, documentation and supporting evidence are in place well before year-end.
What firms should do now
With the revised standard fast approaching, now is the time to start preparing. Taking action early will help avoid surprises, reduce implementation challenges and ensure a smoother transition. We recommend focusing on the following priorities:
- Map the population of leases and lease-like arrangements across the business.
- Identify key judgement areas early.
- Review whether systems and processes can support the new model.
- Assess the impact on KPIs, covenants and communication with stakeholders.
- Engage early with auditors and advisers.
Final thoughts
The revised lease model under FRS 102 is more than a technical accounting update. For many Financial Services firms, it will change the shape of the balance sheet, introduce new areas of judgement, and increase the importance of clear and robust documentation.
The focus is now shifting from understanding the requirements to ensuring they are embedded effectively within financial reporting processes and controls.
If you’d like to discuss how the changes could affect your business, please get in touch with Ranvir Cheema, Director, or your usual HaysMac contact. We’re here to help you prepare for the transition with confidence.
