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This flew under most radars, but we underestimate the changes to FRS 102 in January at our peril.

The changes are significant and poor lease accounting can have serious repercussions. This includes possible audit failures, inaccuracies, poor financial decisions, covenant violations, reputational risk and inefficiencies that harm the business.

So, what progress are companies making to meet this challenge? Just as importantly, what should they do between now and January?

What happens to leases under FRS 102 from January 2026? A little reminder…

Changes to FRS 102 will transform the way businesses in the UK and Republic of Ireland deal with leases. The aim is to further align reporting with the international accounting standard IFRS 16.

This will affect most leases, impacting approximately 3.4 million businesses in the process.

The biggest change is that almost all leases must be reflected on the balance sheet both as right-of-use assets and lease obligations. Linear rental costs will be a thing of the past. Instead, reporting will be more complex. Companies will now record depreciation on leased assets and interest on lease liabilities – this means we can expect the income statements to be similar. very different.

The effect of this change on your business metrics

What you report to stakeholders will change.

Your EBITDA will likely increase. Indeed, rental costs, which will be reclassified as depreciation and interest, will not be taken into account in this calculation.

On the other hand, declared net debt will increasewith the addition of rental debts.

Understand exactly where we are with FRS 102 and what needs to be done

If you want eye-opening insights and expert commentary, the best place to attend was our recent webinar (watch it on demand here).

Called Compliance with lease accounting FRS 102 and beyondI was lucky enough to be joined by:

• Sarah Hughes, accounting consulting partner, CFO Solutions, Grant Thornton United Kingdom
• Fran de Gioia​, Lease Accounting Solutions Specialist, Office of the CFO, IRIS software​ Group

In this webinar we established:

• How many finance professionals have started adapting lease accounting in accordance with amended FRS 102
• What are the wider impacts for businesses
• The importance of controlling stakeholder expectations
• Hidden problems caused by the new FRS 102
• The possible opportunities that the changes bring
• Why spreadsheets don’t cut it

The bottom line: With very little time, most businesses failed to prepare

During the webinar, we asked nearly 200 finance professionals if they had started preparing for the new FRS 102 amendments. Of those who responded, only 3% had fully implemented the changes.

About 41%had not started, and 38% were in the early stages.

So what should they 79% Are financial specialists preparing?

What are the wider impacts of the FRS 102 changes for your business?

Earlier we saw how changes to FRS 102 will affect your metrics from 2026. This means possible consequences for debt covenants and bonus schemes that rely on these figures. This also means that early engagement with lenders and HR teams is essential. if you want to avoid unexpected violations or disputes.

It’s a major change, which means you need to adjust your expectations

The changes will test your company’s change management skills. First, teams will need to work together on leases like never before. Finance, IT, procurement, and operations must work together to identify all leases and update systems. They must also ensure that their judgments and estimates are consistent.

During our webinar, Grant Thornton’s Sarah Hughes said: “The changes are far-reaching. You need to consider whether you actually have a lease. You need to put systems in place to enable you to comply with the standard, and you need to start thinking about all those judgments and estimates that you just haven’t had to think about in the past.”

At the same time, good communication with stakeholders will make a huge difference. Investors, lenders and internal teams will need to know why the numbers presented to them will be different.

Fran De Gioia of IRIS Software Group said: “Engage early with your lenders and manage your investor narrative. The data you are forced to extract for compliance reasons is your best tool for managing market perception.”

Why Lease Changes Will Cause More Accounting Work

It is important to anticipate change, and this is one of the key lessons learned from adopting IFRS 16. Sarah Hughes said: “The situation with FRS 102 is very, very similar – it’s about starting early. It is so important that you do not underestimate how difficult it is to get the information you need. It’s not as easy as it seems.

Finance teams should remain on the ground once they have adapted to the updated standard. Changes to the terms, payments or scope of the lease – often due to renegotiation, termination or restructuring – require careful consideration to decide whether you count the resulting agreement as a new lease or adjust an existing lease. How these changes are recorded depends on their nature, and misclassification can cause you compliance issues.

The new devil in the details – services and leases

One challenge will be identifying hidden leases in service contracts. If a contract names an asset, gives control over its use and conveys its benefits, it can be considered a lease – for example the purchase of electricity from a dedicated solar farm.

This problem can also happen the other way around: many contracts combine asset leasing with services like maintenance or support.

Do not treat each part separately will have consequences because your reports will not be accurate.

What listeners will want

Listeners will have high expectations. They will want a clear written record of accounting policies, judgments and estimates. They will also want to see how leases were identified and recorded.

Grant Thornton’s Sarah Hughes said: “Auditors will review documentation relating to significant accounting policies and key judgments you have made. They will look for consistent application across companies and groups.”

“So it’s very important to standardize the process and the data points.”

How to seize an opportunity: the strategic advantage of changes to FRS 102

This amended accounting standard comes with some good news.

Because you consolidate all leasing information across properties, fleet, IT, and other assets, you’ll gain better visibility into your company’s leasing obligations.

In our webinar survey, 42% of financial professionals considered this to be the biggest gain of the changes to FRS 102.

This enthusiasm for better data makes perfect sense. This means you can develop more effective sourcing strategies. You’ll be able to approach suppliers with a complete view of rental expenses, negotiate better terms, and avoid costly defaults or automatic renewals.

There is a good chance that your managers will thank you too. All of this data allows leaders to make informed decisions when it comes to strategic planning.

Of course, this only seems likely if you have the right tools.

Why financial professionals seem to be moving away from spreadsheets

We spoke with financial professionals earlier in 2025, and now – much closer to the January 2026 changes.

One thing became clear: dedicated software is now the rising star. A much larger proportion of respondents (now 40%) think this is the way to go. These tools automate complex FRS 102 calculations, such as present value, expense splitting and dual-track accounting.

This is not the first time we have seen this change. Fran De Gioia of IRIS Software Group recalls how companies implementing IFRS 16 quickly discovered that spreadsheets could not handle this complexity. He said: “When implementing IFRS 16, most businesses initially relied on complex spreadsheets and manual processes, but these immediately failed when they had to manage lease changes.

“Each change in scope or renewal option of rent review triggers a complex mandatory reassessment. This has quickly turned into a chaotic, recurring end-of-month nightmare.”

So if you’re considering sticking with worksheets, it’s worth asking yourself: Is all the extra time, risk, and effort worth it?

Get all the information – watch the full webinar

One blog post can barely scratch the surface of what was – thanks to Sarah and Fran – 50 minutes of high quality information on all the changes to FRS 102.

SO watch the webinar to find out a lot more, because with leases it will all be a question of details.