Quick Guide to FRS 102 Lease Accounting

FRS 102 is now effective for lease accounting in the UK from 1 January 2026. This is now something many UK businesses will need to think about. 

If you do not qualify for exemption under FRS 101 or FRS 105,  lease accounting change is applicable. New rules have been amended to align with  IFRS regulations, specifically IFRS 16. That means leases are no longer something you can just treat as a monthly expense. They now need to be recognised on the balance sheet. 

In this guide, we’ll break it down in a simple way so you can understand what it means in practice. 

What is FRS 102?

FRS 102 is the main accounting standard to now be used by many UK businesses. 

It sets out how companies filing under UK accounting standards should prepare their financial statements so that they are consistent, accurate, and auditable. 

Historically, lease accounting under UK GAAP was simpler than IFRS. Now, lease accounting requirements have been brought more in alignment with IFRS 16. 

IFRS 16 Leasing

What is happening with lease accounting under FRS 102? 

FRS 102 now requires most leases to be recognised on the balance sheet. Simply put, iIf your business is using an asset and making payments for it over time, that lease now needs to be reflected in your accounts. 

This means recognising: 

  • A right-of-use asset (the thing you are using) 
  • A lease liability (the payments you still owe) 

Again, This approach brings FRS 102 more in line with IFRS 16. 

Why has this been introduced? 

Previously, many leases were kept off the balance sheet. This could make a company appear to have fewer liabilities than it actually did. Now there should be transparency, and an accuracy in financial reporting, giving a clearer picture of a company’s financial position. 

What does this mean in practice?

While the principle is simple, the reality can be more complex. 

To comply with FRS 102 lease accounting, businesses need to: 

  • Identify all leases across the organisation 
  • Gather key information such as lease terms and payment schedules 
  • Calculate lease liabilities and interest 
  • Calculate depreciation of the asset 
  • Update these calculations regularly, particularly if terms change 
  • Present the results correctly in financial reports 

This is manageable with a small number of leases. 

But as the number of leases grows, so does the complexity. 

Where do businesses typically struggle?

Many organisations use Excel spreadsheets to manage lease accounting. 

We understand why, and it works well to a point. But over time, challenges start to appear. Such as potential manual errors in calculations and the data sitting with one or two people, or different versions, these challenges increase alongside business growth. As businesses grow, they will need more accuracy and support to meet audit requirements and provide consistency across the whole business.  

What can help with FRS 102 lease accounting? 

This is where structured reporting tools become important. 

Lease16 is Aramar’s lease accounting solution, built on IBM Planning Analytics. It is designed to handle lease accounting requirements under both IFRS 16 and FRS 102. 

With Lease16, finance teams can: 

  • Automatically calculate valuations for right-of-use assets and lease liabilities 
  • Apply discount rates and payment schedules, including change updates 
  • Generate consistent accounting outputs 
  • Support audit and disclosure requirements 
  • Integrate lease data into consolidation and reporting 

This reduces risk and saves time for finance teams, whilst also providing a structured and scalable approach to lease accounting. 

Summary

FRS 102 lease accounting brings UK accounting standards closer to IFRS regulations, illustrated in this article by IFRS 16 and lease accounting. While the goal is improved transparency, it also introduces more work for finance teams. 

For organisations with multiple leases, managing this in spreadsheets can quickly become chaotic. With the right approach and the right tools, lease accounting can be handled accurately, and with far less manual effort. 

Need support with FRS 102 lease accounting?

If you are reviewing how to manage lease accounting under FRS 102, please contact us today, we would love to help.  

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Important Disclaimer: Aramar provides software and does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and should not be relied on for tax, legal or accounting advice. You should consult your own advisors before making decisions.