The 2026 amendments to FRS 102 represent a fundamental shift in lease accounting, aligning UK and Irish standards closer to IFRS 16. For finance teams, the challenge isn't just the balance sheet impact, but the extensive new disclosure requirements. This checklist focuses specifically on Section 20, helping you ensure your notes are audit-ready.
Under the new FRS 102 amendments, the distinction between "operating" and "finance" leases is largely disappearing for lessees. The vast majority of lease arrangements are required to be recognised on the balance sheet, unless the lease is of short duration or relates to an asset of low value.
Note on lease identification: Before applying the checklist, ensure the contract meets the definition of a lease by conveying the right to control the use of an identified asset for a period of time. If the supplier has substantive substitution rights, the contract may be a service rather than a lease.
To be compliant, your notes must include:
Right-of-Use (RoU) asset disclosures
- Categorization (i): Disclosure of the carrying amount of RoU assets at the end of the reporting period, categorized by class (e.g., property, vehicles, equipment).
- Depreciation (ii): Clear statement of the depreciation methods and useful lives/rates used for each class of RoU asset.
- Asset movements (iii): A reconciliation (roll-forward) of the opening and closing balances of RoU assets, specifically highlighting:
- Additions: New lease agreements entered into during the year.
- Disposals: Terminations or disposals of lease contracts.
- Impairments: Any impairment losses recognized or reversed.
Read more: How to prepare for your next audit under FRS 102 Section 20.
Lease liability disclosures
- Current vs. non-current (iv): A clear split between lease liabilities due within one year and those due after more than one year.
- Interest expense (iv): Total interest expense on lease liabilities recognized during the period.
- Movement table (iv): A reconciliation showing the movement from the opening balance (IB) to the closing balance (UB), accounting for new liabilities, interest accruals, and lease payments.
- Maturity analysis (v): A table showing the undiscounted contractual cash flows of lease liabilities, typically broken down by:
- Not later than one year.
- Later than one year and not later than five years.
- Later than five years.
Explore our FRS 102 software.
Exemptions, discount rates and practical expedients
- Short-term and low-value: Disclosure of expenses relating to short-term leases (under 12 months) and leases of low-value assets if the recognition exemption is used.
- Discount rates: Disclosure of the discount rates used. This is typically the Incremental Borrowing Rate (IBR) if the rate implicit in the lease cannot be readily determined.
- Practical expedients: Disclose if the entity has elected the practical expedient to not separate non-lease components (such as service charges) from lease components.
Read more: FRS 102 lease changes 2026 compared with IFRS 16.
Lease transition disclosures (first year only)
To ensure a clear audit trail during the 2026 transition, your first set of accounts should include:
- Transition approach: Disclosure of whether the entity has used the full retrospective or the modified retrospective approach.
- Equity reconciliation: A note explaining the transition adjustment to opening equity reserves.
- Commitment bridge: A reconciliation between the operating lease commitments disclosed under the previous rules and the lease liabilities recognized on the date of initial application.
Read more: FRS 102 Section 20: Why spreadsheets break – and how to get it right.
Key takeaways
- EBITDA and gearing: While EBITDA will likely increase as lease costs move to depreciation and interest, be aware of the impact on gearing ratios. Total debt will increase, which may affect bank covenants.
- Audit readiness: Having a structured "roll-forward" for both RoU assets and lease liabilities is essential for a smooth year-end process.
Disclaimer: House of Control is a software company. We do not offer FRS 102 compliance consulting services. Thus, following the checklist does not guarantee compliance with all FRS 102 legal requirements. The contents of the checklist are based on our own research of the FRS 102 requirements and our experience with lease accounting, and includes inspiration from various actors offering compliance services. We do not assume any responsibility or liability for any failure to comply with FRS 102 requirements or resulting from the use of the checklist.