Upcoming changes to FRS102

Currently, under FRS 102, leases are categorized into two distinct types: finance leases and operating leases. The determination of a lease’s classification hinges upon the economic substance of the transaction.

The upcoming changes set out below are intended to align FRS 102 with international standards, with the necessary simplifications. Unlike its predecessor, IFRS 16 disregards the finance versus operating lease differentiation. Instead, contracts meeting the lease definition trigger the balance sheet recognition of a lease asset and a corresponding lease liability.

This liability is accounted for using the effective interest method, thereby incorporating interest costs into the statement of comprehensive income alongside depreciation charges relating to the lease asset.

Nonetheless, exceptions exist for leases involving ‘low-value’ assets or those with a total lease term of 12 months or less, offering the option to persist with the traditional operating lease treatment in such scenarios.

The transformative impact of the adoption of the IFRS 16 lease accounting model is anticipated to be wide reaching for certain entities and will be effective for accounting periods beginning on or after 1 January 2026. We would therefore encourage companies to plan today for adopting these changes.

Should you wish to find out more please give the Curo team a call at 01527 558539 or via email at [email protected].