Significant changes to lease accounting standards will commence from 01 January 2026.
From this date, amendments to FRS 102 come into play which require that companies recognise operating leases as a balance sheet item in the same way as finance leases. It is important to note that contract hire agreements will come under the definition of operating leases so this will be a significant accounting change for those with contract hire fleets.
Operating leases need to be identified as a Right of Use (ROU) asset with a corresponding lease liability. The ROU asset will be depreciated in accounts at the relevant interest rate with a finance charge on the lease liability.
Mike Manners, Managing Director of CBVC Vehicle Management, said:
“It’s important for companies to get to grips with the lease accounting changes as soon as possible to recognise what impact the changes might have on financial gearing as well as EBITDA.”
The changes to lease accounting will not affect micro companies.
What to do next?
Companies affected by the lease accounting changes are encouraged to seek advice from their financial advisers as soon as possible.
You can also find more detail in the Financial Reporting Council’s factsheet about the changes here.
Photo by Daoud Abismail on Unsplash
