Beyond the spreadsheet: why FRS 102 lease accounting is not a one-off calculation

The first two pieces in this series set out the balance sheet shock and the covenant trap. The transition is not only an accounting exercise: it reaches the balance sheet and the banking relationship. So how is it managed in practice?

Many firms default to a spreadsheet. The problem is that Section 20 is not a one-time calculation. The liability is remeasured whenever the payments change:

• An RPI or CPI uplift, or a market rent review, remeasures the liability when the new rent takes effect, at the original discount rate (paragraphs 20.68(b) and 20.69).
• A break clause exercised, or a renewal option taken up, revises the lease term and remeasures the liability at a fresh rate taken on that date (paragraphs 20.66(a) and 20.67).
• A change agreed with the landlord that the contract did not provide for is a modification, remeasured on the date both parties agree (paragraphs 20.70 to 20.73).

Each of these produces a new schedule from that date forward, leaves the earlier periods as reported, and carries its own journal.

One wrong commencement date or one missed index review compounds through every subsequent period. By month 36 of a ten-year lease a single input error has produced materially misstated figures, which is exactly the kind of thing a file review finds.

What a file review asks for is the same in every case: a link from each figure to the clause that produced it, and a record of who confirmed what, and when. A spreadsheet can hold the figures. It cannot hold the evidence.

Lease102 reads the lease document, proposes the terms for sign-off, runs the Section 20 calculation natively rather than through an IFRS 16 engine adapted afterwards, and keeps every schedule entry linked to the source document, with reference rates from the Bank of England and the European Central Bank built in.