The revised FRS 102 lease accounting requirements are now in effect.

For accounting periods beginning on or after 1 January 2026, changes to Section 20 have introduced a new approach to lease accounting, bringing most leases onto the balance sheet for lessees.

For finance teams, the challenge now extends beyond understanding what has changed. Organisations need to ensure they have the data, processes and systems required to apply the requirements consistently and manage lease accounting effectively going forward.

So, what do the changes mean in practice, and what should finance teams be considering in 2026 and beyond?

What Has Changed Under FRS 102?

Previously, FRS 102 distinguished between operating and finance leases.

Under the revised Section 20, this distinction has been removed for lessees. Instead, most leases are now recognised on the balance sheet through a right-of-use asset and corresponding lease liability.

There are recognition exemptions, including for short-term leases and leases of low-value assets, so not every lease will necessarily need to be brought onto the balance sheet.

For organisations with significant lease portfolios, however, this represents an important change to both financial reporting and the processes required to manage lease information.

What Does This Mean for Financial Reporting?

Bringing more leases onto the balance sheet can affect several areas of the financial statements.

Organisations that previously held operating leases may see increases in reported assets and liabilities.

The presentation of costs also changes. Rather than recognising rental expense in the same way as previously, affected leases generally result in depreciation of the right-of-use asset and interest expense associated with the lease liability.

The impact will vary depending on the organisation and its lease portfolio, but finance teams need to understand how the changes affect their financial statements and wider reporting requirements.

Managing Lease Data Under the New Requirements

One of the practical challenges is ensuring the right lease information is available and remains accurate.

Relevant information may be spread across contracts, spreadsheets, property teams, procurement systems and other areas of the organisation.

Depending on the lease, finance teams may need to maintain information including:

• Lease commencement and end dates
• Payment schedules
• Extension and termination options
• Discount rates
• Lease modifications
• Information required to determine whether exemptions apply

The challenge is not simply gathering this information once.

New leases will be introduced, existing agreements may change and leases will eventually expire. Organisations therefore need a reliable process for keeping their lease portfolio up to date.

How Does FRS 102 Compare With IFRS 16?

The revised Section 20 is based on the on-balance sheet model used by IFRS 16, but the two standards should not be treated as identical.

The FRC has introduced simplifications and modifications intended to provide a proportionate approach for organisations applying FRS 102.

For example, FRS 102 provides differences in areas such as the low-value recognition exemption and determining the appropriate discount rate, including the use of the lessee's obtainable borrowing rate in relevant circumstances.

Organisations already familiar with IFRS 16 may therefore have useful processes and experience to draw upon, but finance teams still need to understand the specific requirements that apply under FRS 102.

What About Transition?

For leases existing when the revised requirements were first applied, FRS 102 uses a modified retrospective approach.

Rather than restating comparative information, the cumulative effect of initially applying the revised requirements is recognised as an adjustment to opening equity at the date of initial application.

For organisations that have already completed this transition, attention now needs to move towards maintaining accurate lease accounting on an ongoing basis.

That includes ensuring new leases are identified, changes are captured and calculations remain accurate throughout the life of each agreement.

Is Your Lease Accounting Process Sustainable?

For organisations with a small number of straightforward leases, spreadsheets may continue to provide an appropriate way of managing lease accounting.

However, complexity can increase quickly as the number of leases grows.

Different payment schedules, discount rates, renewal options and modifications all need to be reflected correctly. Finance teams may also need to produce calculations, journals and reporting across an expanding portfolio.

If lease information is spread across multiple spreadsheets or departments, maintaining control over the process can become increasingly difficult.

The question in 2026 is therefore no longer simply:

“Can our existing process support the transition?”

It is increasingly:

“Can our existing process support FRS 102 lease accounting effectively every reporting period?”

Moving From Implementation to Ongoing Management

Once the initial transition has been completed, lease accounting becomes an ongoing process.

Organisations need a reliable way to identify new leases, capture amendments and reassess calculations when agreements change.

This makes clear ownership and appropriate controls particularly important.

Finance should understand how new leases enter the organisation, who is responsible for providing relevant information and how changes are communicated. Without an established process, there is a risk that new agreements or modifications are identified too late.

For larger lease portfolios, this is also where technology can become increasingly valuable.

How Can Technology Support FRS 102 Lease Accounting?

Dedicated lease accounting technology can provide a more structured approach to managing larger or more complex portfolios.

Rather than maintaining separate spreadsheets and calculations, organisations can centralise lease information and support calculations, accounting entries and reporting within a controlled environment.

The benefit extends beyond the initial adoption of FRS 102.

As leases are added, amended, renewed or terminated, a centralised approach can make it easier to maintain accurate information and apply consistent accounting treatment across the portfolio.

The objective is not simply to automate a calculation. It is to establish a repeatable and sustainable lease accounting process.

Managing FRS 102 Lease Accounting in 2026 and Beyond

The revised FRS 102 requirements represent a significant change to lease accounting, but implementation is only the beginning.

Finance teams now need to ensure their processes remain effective as lease portfolios change over time.

That means maintaining accurate data, capturing new leases and modifications, applying appropriate controls and ensuring calculations and reporting remain reliable.

For organisations with larger or more complex lease portfolios, this may also be the right time to consider whether spreadsheet-based processes remain appropriate.

At HAYNE Solutions, we work with organisations to improve and automate lease accounting using CCH® Tagetik IFRS 16 & Lease Accounting.

By centralising lease information and supporting calculations, accounting and reporting within a controlled environment, technology can help finance teams move beyond the initial FRS 102 transition and establish a more sustainable approach to lease accounting.

Speak to HAYNE Solutions about your lease accounting requirements and how technology can support your organisation in 2026 and beyond.