FRC lease accounting overhaul to affect insurer balance sheets

The financial reporting council (FRC) is making changes to its generally accepted accounting principles (GAAP) – known as FRS 102 – which will affect how UK and Northern Irish firms, including insurers, will have to report their lease accounting.

Currently, businesses lease out assets – including property, machinery and vehicles – under two broad categories – finance leases and operating leases.

Finance leases – which effectively transfers all of the risks and rewards of ownership to the lessee and last for most of the asset’s lifetime – are lodged on a company’s balance sheet, while operating leases – which act closer to a rental in that they do not transfer risks and rewards to the lessee and last a shorter period of time – are not written to the balance sheet and are instead expensed straight to P&L.

However, under the new regulations, operating leases, excluding extremely short-term and low-value transactions, will also have to be written to the firm’s balance sheet.

Reporting impact

Speaking at a seminar on the topic held today (2 October 2025) by accountancy firm PKF Littlejohn, Alex Kiracho, senior manager at PKF Littlejohn, said the changes would see “Ebitda, total assets and liabilities and gearing” increase for firms, while “earnings per share, net assets, interest cover and return on capital employed” would decrease.

The changes will come into effect for accounting periods beginning on or after 1 January 2026, although the FRC said early adoption of the new standards will be permitted for firms that choose to do so.

The FRC said the changes were intended to more closely align the UK’s GAAP to the international standard IFRS 16.

Kiracho concluded: “We encourage you to look at the new rules closely, and be transparent with stakeholders about what changes are coming, and what the changes will affect.”