At a glance
- Lessee model
- Now materially the same under both
- Biggest remaining difference
- Transition route
- FRS 102 transition
- Modified retrospective only
- IFRS 16 transition
- Full or modified retrospective
- FRS 102 effective
- Periods beginning on or after 1 Jan 2026
- Which applies
- Follows the reporting framework, not a choice
Which one applies to you
This is not a lease-by-lease decision. It follows the framework the entity reports under. An entity preparing accounts under UK GAAP applies FRS 102 Section 20. An entity preparing under UK-adopted international accounting standards applies IFRS 16.
A group can contain both, and often does: a UK trading subsidiary filing under FRS 102 alongside a parent or sister entity reporting under IFRS. That is a practical problem rather than a technical one, because the two sets of figures have to be prepared on different bases and then consolidated.
What the two standards now share
Before the periodic review, the gap was fundamental: IFRS 16 had already removed the operating and finance lease distinction for lessees, while UK GAAP kept it, so operating leases were disclosed in the notes but did not appear as assets or liabilities. The amendments close most of that gap.
Under both standards a lessee now recognises a right-of-use asset and a lease liability for most leases. The liability is the present value of the lease payments, discounted at the rate implicit in the lease or, where that is not readily determinable, at the incremental borrowing rate. The asset starts at cost, which is the liability plus prepayments, initial direct costs and any estimated restoration obligation. The liability then unwinds under the effective interest method while the asset is depreciated. Short-term and low-value recognition exemptions are available under both.
Where they still differ
| Dimension | IFRS 16 | FRS 102 (amended) |
|---|---|---|
| Where it sits | IFRS 16 Leases, issued by the IASB. | FRS 102 Section 20 Leases, as amended by the Periodic Review 2024. |
| Who applies it | Entities reporting under UK-adopted international accounting standards. | Entities reporting under UK GAAP. |
| Effective from | Accounting periods beginning on or after 1 January 2019. | Accounting periods beginning on or after 1 January 2026. |
| Lessee balance sheet modelSame under both | Right-of-use asset and lease liability for most leases. The operating and finance lease distinction is removed for lessees. | The same on-balance-sheet model, which is the substance of the 2026 change. |
| Initial measurementSame under both | Liability at the present value of the lease payments. Asset at cost: the liability plus prepayments, initial direct costs and estimated restoration obligations. | The same measurement core. |
| Discount rateSame under both | The rate implicit in the lease, or the incremental borrowing rate where the implicit rate is not readily determinable. | The same hierarchy. |
| Subsequent measurementSame under both | Liability unwound using the effective interest method; right-of-use asset depreciated over the shorter of the lease term and the useful life. | The same treatment. |
| Recognition exemptionsSame under both | Short-term leases of 12 months or less at commencement, and leases of assets of low value when new. Both are policy choices and require disclosure. | Equivalent exemptions are available. |
| Transition route | A choice was available between full retrospective and modified retrospective. | Modified retrospective only. Full retrospective restatement is not permitted. |
| Comparatives | Restated under full retrospective; not restated under modified retrospective. | Not restated. The cumulative effect goes to opening equity at the date of initial application. |
Transition is the difference that matters most
If you take one thing from this page, take this. The amended FRS 102 requires the modified retrospective approach for lessees. Full retrospective restatement is not permitted, and comparatives are not restated; the cumulative effect is recognised in opening equity at the date of initial application.
IFRS 16 was different. It gave reporters a choice between full retrospective and modified retrospective transition, and a good deal of the guidance written about IFRS 16 adoption is about weighing that choice. None of that weighing applies under FRS 102, because there is no choice to make. Guidance written for IFRS 16 does not transfer cleanly here, and this is the most common place to go wrong.
For a company with a 31 December year end, the date of initial application is 1 January 2026 and the first affected accounts are those for the year ending 31 December 2026. The modified retrospective worked example shows the opening calculation and journal, and the FRS 102 transition guide covers the practical steps around it.
What this means in practice
For a UK company that has never put an operating lease on the balance sheet, the work is not the ongoing arithmetic, it is the transition: finding every lease, deciding each lease term where options exist, supporting a discount rate for each one, and being able to show a year later how the opening balance was arrived at. Those judgements are made once and then examined during the audit of the first affected period.
For a group running both standards, the practical requirement is being able to apply the framework per entity without maintaining two sets of workings, and then explaining the difference between them.
Both standards, one account
AuditLease applies IFRS 16 or FRS 102 per legal entity from the same calculation core, with the judgements and the evidence stored alongside the figures. Free for up to 3 active leases.
This guide is general information about the requirements of the two standards, not accounting advice for a particular entity. Check the standards themselves, and your auditor's expectations, before applying any of it to a real set of accounts.