Common FRS 102 Lease Accounting Errors and Fixes
The same handful of FRS 102 lease accounting errors come up in audit after audit. Most produce numbers that look plausible, which is exactly why they survive review. Here are the ten we see most often, why each happens, and the fix, with the paragraph references to settle the discussion.
Measurement errors
These change the balance sheet numbers themselves.
1. Netting incentives against the lease liability
A rent-free period or landlord fit-out contribution is deducted from the liability. Wrong: under FRS 102.20.13 incentives reduce the right-of-use asset. The liability is always the present value of the remaining payments, nothing else. (A rent-free period expressed as £0 payments is already in that present value and is not deducted again.)
2. Leaving dilapidations out of the ROU asset
The estimated cost of restoring the premises at lease end belongs in the initial ROU asset, with a matching Section 21 provision. Omitting it understates both sides of the balance sheet and surfaces as a nasty surprise at the final year end.
3. An undocumented or arbitrary discount rate
The rate is the input auditors challenge first. Picking 'about 5%' with no evidence fails; so does reusing one rate across leases with very different terms and commencement dates. Document the basis per lease at its commencement date: a bank facility rate, a recent loan offer, or a reference-rate base (SONIA, €STR) plus a credit spread (FRS 102.20.51-20.52).
4. Index-linked rents measured at a guessed future rate
RPI or CPI-linked payments enter the liability at the rate prevailing at commencement, not at a forecast. When the uplift actually lands, the liability is remeasured. Building in assumed future increases overstates the liability from day one.
5. Advance versus arrears mixed up in the present value
A payment on the first day of each period discounts differently from one on the last day, and over a 10-year lease the difference is material. This is the classic spreadsheet error, along with day-count inconsistencies between the PV formula and the interest schedule.
Scope and term errors
These put the wrong leases, or the wrong lease term, into the calculation.
6. Treating pre-2026 leases as out of scope
A lease signed in 2020 that is still running at your transition date comes on the balance sheet, measured from its remaining payments. The 2026 rules are not just for new leases; see the transition date topic for the mechanics.
7. Low-value judged by price, not nature
The low-value exemption depends on the type of asset when new: laptops, tablets, phones and small office furniture may qualify; vehicles and property never do, however cheap the lease (FRS 102.20.11). A £150-per-month car lease is on the balance sheet.
8. Ignoring options that are reasonably certain
If you are reasonably certain to exercise an extension option, those extra years are part of the lease term and their payments are in the liability. The assessment is revisited when a significant event or change in circumstances makes it clear the position has changed (FRS 102.20.53).
Transition and disclosure errors
These trip up the first set of compliant accounts.
Errors 1, 2, 5, 9 and 10 are structural
9. Restating comparatives under the modified retrospective approach
The modified retrospective approach, which is mandatory for the lease amendments, measures each lease at the transition date and leaves prior-year comparatives exactly as previously reported; any cumulative effect of first applying the amendments goes to opening retained earnings. There is no full retrospective option, so restating the comparatives is simply wrong.
10. Missing the maturity analysis
The lease liability maturity analysis by time band (FRS 102.20.39) is the disclosure most often absent from first-year FRS 102 accounts, because nothing in the trial balance prompts it. It needs the amortisation schedule, not the ledger.
Remove the arithmetic errors
Lease102 calculates the liability, builds the ROU asset with incentives and dilapidations in the right place, and produces the maturity analysis automatically.