FRS 102 reporters will need to record their most significant leases on the balance sheet. This video outlines what questions need to be answered when assessing whether a contract is, or contains, a lease.
As part of the Periodic Review 2024 amendments to UK GAAP, entities preparing accounts under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (September 2024) will need to assess whether a contract is, or contains, a lease for accounting periods beginning on or after 1 January 2026.
Where it’s concluded that the contract is – or does contain – a lease, the lessee will need to recognise that lease on the balance sheet by recording both an asset and a liability. The asset reflects the right to use the asset over the lease term and the liability reflects the entity’s obligation to make lease payments.
Leases that are short-term (lease term of 12 months or less) or for low-value assets are exempt from the changes and will not need to be recognised on the balance sheet.
Where a contract does not contain a lease or the lease is exempt, payments are expensed through profit or loss over the lease term.
The changes to lease accounting do not apply to reporters preparing accounts under FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime (September 2024).
- UK GAAP changes in focus at ICAEW Corporate Reporting conference
- UKEB seeks stakeholder engagement on the draft endorsement assessment of IFRS 18
- Accounting consequences for new packaging waste disposal fees
- What’s changed in lease accounting?
- Building credibility and trust in sustainability reporting and disclosure
