The Cumbrian business advisory firm has warned that companies with operating leases will soon need to reclassify these as ‘right of use’ assets under the revised FRS 102 financial reporting standard.
This change will apply to accounting periods starting on or after January 1, 2026, and will affect offices, warehouses, retail spaces, vehicles, and other high-value leased equipment.
“The changes do not impact companies under the FRS 105 micro regime but if you are a small, medium or large business, it is important to be aware of what is changing and how to prepare for the transition.”
The new standard will require businesses to bring most operating leases onto the balance sheet, recognising both a ‘right of use’ asset and a corresponding lease liability.
Lauren Graham, audit and assurance director at Armstrong Watson, said: “For a business with a number of operating leases, there will be some work to do to identify operating leases and prepare to bring them on balance sheet, as well as updating their systems and process to comply with the new FRS 102 requirements.
“While accounting for new lease changes won’t be mandatory until accounting periods commencing on or after January 1, 2026, businesses need to be thinking about it now to ensure they are aware of any impacts it may have on the business.”
The update could affect a company’s reported asset base, potentially impacting its classification, audit requirements, bank covenants, and any EBITDA-linked bonuses.
There are exemptions for low-value assets, such as small office furniture and mobile phones, and for leases shorter than 12 months.
To help businesses prepare, Armstrong Watson is hosting a free webinar on Wednesday, June 25, at 9am.
The session will outline the changes, their implications, and practical steps for compliance.
Attendees will also gain access to a free calculator tool to assist with the transition.
Ms Gray said the best way to prepare for the changes is to begin reviewing current operating leases now and consider system or process updates that may be needed.
She said: “The earlier businesses start this process, the better positioned they will be to manage the impact on their financial statements and ensure a smooth transition.
“We encourage all affected companies to make use of the support tools and resources available to them.”
To register for the webinar, visit armstrongwatson.info/webinar_leases.
