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 remaining lease payments at the transition date, and a right-of-use asset equal to the lease liability (adjusted for any prepayments or accruals). Prior year comparatives are not restated. A cumulative transition adjustment is recognised in retained earnings.
Why it matters
The modified retrospective approach is the most common transition method because it avoids the cost and complexity of restating prior year accounts. However, it requires a separate calculation for each in-scope lease at the transition date.
In AuditLease
AuditLease handles FRS 102 modified retrospective transition runs. The transition calculation uses the remaining payments from the transition date and the IBR at that date.
Related terms
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.