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General

An entity can prepare accounts in the UK either under UK GAAP or International Financial Reporting Standards (IFRS) and for tax purposes both standards from part of what is referred to as generally accepted accounting practice (GAAP – which is distinct from UK GAAP).

If an entity prepares UK GAAP accounts under FRS 102, then its leases will be in accordance with GAAP if it accounts for them in accordance with FRS 102 s 20. As part of the periodic review of FRS 102 the lease accounting treatment was updated to align with the IFRS 16 treatment. This resulted in FRS 102 (2024) where for lessees all leased assets are accounted for in the same way for periods beginning on or after 1 January 2026 (early adoption permitted). This is known as a 'right-of-use' lease. Therefore, for lessees, there is no distinction between operating and finance leases under FRS 102 (2024) whereas there was in FRS 102 (2022). There is no change to the way in which lessors account for their leases.

It should be noted that