A small number of UK and Irish companies chose to adopt the revised FRS 102 Section 20 early, ahead of the mandatory effective date for periods beginning on or after 1 January 2026. Their experiences, both positive and painful, offer a valuable window into what the transition actually looks like in practice.
For the thousands of companies now approaching their own adoption date, these early adopters have already highlighted the pitfalls and shortcuts that matter most. This article distils what worked, what didn't, and what you can do differently.
The recurring feedback was straightforward: while the technical accounting was manageable, the operational challenge of gathering data, aligning stakeholders, and building sustainable processes was where most companies either succeeded or stumbled.
Tip: Visit our FRS 102 guide for a complete overview of the 2026 lease accounting changes, or see our transition guide for a step-by-step approach.
What Went Right
Starting data collection early
The single biggest differentiator between smooth and difficult transitions was timing. Companies that began gathering lease contracts nine to twelve months before their adoption date were in a fundamentally better position than those that started three to six months beforehand.
Lease data is rarely centralised. Property contracts sit with the estates team, vehicle leases with operations, equipment agreements with procurement, and IT leases with the technology function. Extracting the key terms from each contract, including commencement dates, renewal and termination options, fixed versus variable payments, and escalation mechanisms, takes longer than most finance teams expect. Early adopters who built a complete lease register well ahead of their transition date had time to fill gaps, chase missing contracts, and resolve ambiguities without the pressure of a looming deadline.
Getting auditor alignment on discount rates early
Determining the obtainable borrowing rate (the equivalent of the incremental borrowing rate under IFRS 16) for each lease requires judgement, and that judgement needs to withstand audit scrutiny. Early adopters who drafted their discount rate methodology and shared it with auditors months before transition avoided the back-and-forth that derailed other companies at the last minute.
The methodology itself is less important than the alignment. Whether you use a single portfolio rate or differentiate by asset class, currency, and term, what matters is that your auditors have reviewed the approach and are comfortable with it before you calculate your opening balances.
Leveraging IFRS 16 experience
Companies that also report under IFRS 16, or that engaged advisors with deep IFRS 16 experience, had a significant head start. The revised FRS 102 lessee model is closely aligned with IFRS 16, so the conceptual framework, data requirements, and ongoing maintenance processes are nearly identical. These companies did not need to learn the mechanics from scratch. They could focus efforts on the FRS 102-specific differences, such as the simplified transition approach and the available practical expedients.
Investing in software from day one
Some early adopters decided to implement dedicated lease accounting software before beginning their transition calculations. Rather than building a spreadsheet model and then migrating to a system later, they went straight to the tool they intended to use long-term. This avoided the double-handling that many IFRS 16 adopters experienced: building a working spreadsheet, validating it, and then rebuilding the same data and logic in a new system months later.
What Didn't Go Well
Underestimating embedded leases
Several early adopters discovered, well into their transition, that their initial lease register was incomplete. The leases they had missed were not obvious ones. They were embedded in service contracts: managed print agreements where the provider supplies dedicated equipment, IT hosting arrangements with identified servers, logistics contracts with dedicated vehicles, and outsourced catering arrangements with installed kitchen equipment.
Identifying whether a service contract contains a lease under Section 20 requires careful analysis of whether the arrangement conveys the right to control an identified asset. Companies that did not perform this assessment systematically found themselves adding leases to their register late in the process, which disrupted timelines and audit readiness.
Treating transition as a one-off project
Companies that assembled a transition team, completed the opening balance calculations, and then disbanded the team quickly discovered that the work was far from over. Lease accounting under the revised standard is an ongoing process, not a one-time event. Every rent review triggers a remeasurement. Every lease modification requires recalculation. New leases need to be identified, assessed, and added. Quarterly and annual disclosures require maturity analyses, roll-forward schedules, and reconciliations.
Early adopters who staffed up for a project rather than a process found themselves scrambling at their first reporting date after transition.
Not communicating the balance sheet impact
Bringing leases onto the balance sheet increases reported debt and changes key financial ratios. For some companies, the impact was material enough to affect loan covenant calculations or alter the way performance metrics were interpreted by boards and lenders.
The companies that handled this well ran a preliminary impact assessment on their largest leases and shared the results with stakeholders months before the numbers appeared in the accounts. Those that did not, had difficult conversations after the fact, with boards surprised by the step change in net debt and lenders asking whether covenant definitions needed revisiting.
Relying on spreadsheets for complex portfolios
This lesson echoes the experience of IFRS 16 adopters. Spreadsheets can handle a small number of simple leases, but the tipping point comes faster than expected. Once you factor in mid-term modifications, CPI-linked escalations that trigger remeasurements, multiple discount rates, and the disclosure schedules required at each reporting date, the overhead of maintaining a spreadsheet model often exceeds the cost of dedicated software. Early adopters with more than twenty to thirty leases consistently reported that spreadsheets were not sustainable beyond the first reporting period.
Key Takeaways for Companies Preparing Now
The experience of early adopters points to a clear set of practical steps for companies approaching their own transition. Based on their collective experience, we recommend considering the following:
- Start your lease inventory now. Collect contracts from every department and location, including property, vehicles, equipment, and any service agreements that may contain embedded leases. Do not wait for perfect data. A complete, even if imperfect, lease register is far more useful than a partial one.
- Assess service contracts for embedded leases. Review managed print, IT hosting, logistics, and outsourced service agreements systematically. Overlooking these is one of the most common and disruptive errors.
- Agree your discount rate methodology with auditors early. Draft your approach to determining the obtainable borrowing rate, share it with your auditors, and incorporate their feedback well before you calculate opening balances.
- Brief your stakeholders before the numbers land. Run a preliminary impact assessment on your largest leases and share the results with your board, lenders, and covenant monitors. A short briefing now can prevent difficult conversations later.
- Be honest about whether spreadsheets will cope. If you have more than a handful of straightforward leases, evaluate dedicated software early. The time saved on modifications, disclosures, and audit support typically justifies the investment.
- Design for ongoing maintenance, not just transition. The processes, systems, and responsibilities you put in place now should be sustainable for the long term. Build with ongoing use in mind.
- Familiarise yourself with the transition requirements. Make sure you understand the simplified transition approach, available practical measures, and first-year disclosure requirements before starting your calculations.
- Engage cross-functional support. Lease data is spread across property, fleet, procurement, IT, and legal teams, meaning that the finance teams cannot manage this alone. Identify key contacts in each department early and secure their support for the process.
The companies that had the smoothest transitions were not necessarily the largest or best-resourced. They were the ones that started early, engaged their auditors, communicated the impact to stakeholders, and built processes designed for the long term rather than just the opening balance date.
