Modified retrospective approach
A transition method that applies the new lease accounting rules from the transition date without restating prior year comparatives.
Definition
Under the modified retrospective approach, the lessee recognises a lease liability at the present value of the remaining lease payments at the transition date, discounted at the incremental or obtainable borrowing rate at that date. Prior year comparatives are not restated. How the right-of-use asset is measured at transition depends on the standard. For comparison, IFRS 16 paragraph C8(b) allows either an amount as if the standard had always applied, using the incremental borrowing rate at the date of initial application, or an amount equal to the lease liability adjusted for prepaid or accrued lease payments, and only the first can leave a difference from the liability to be taken to opening retained earnings. Amended FRS 102 (paragraph 1.51(b)) provides one basis only: the right-of-use asset is set equal to the lease liability, adjusted for any prepaid or accrued lease payments recognised immediately before the date of initial application. The as-if-always-applied option is not available under FRS 102.
Why it matters
Under the amended FRS 102, modified retrospective is the only transition method permitted for lessees, so there is no choice to make. IFRS 16 allowed a choice between full and modified retrospective; modified retrospective avoids restating prior year accounts. Either way the transition measurements are needed for the leases in scope at the transition date; permitted practical expedients can reduce the work.
In AuditLease
AuditLease handles FRS 102 modified retrospective transition runs. The transition calculation uses the remaining payments from the transition date and the incremental or obtainable borrowing rate at that date.
Related terms
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Modified retrospective worked example for FRS 102 →Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence, so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.