Your transition roadmap
To break down your transition into a manageable process, we recommend following these six steps.
Step 1: Scoping
The foundation of a smooth transition is identifying exactly what is affected.
- Identify affected entities and contracts. If your business has significant lease arrangements or complex revenue contracts, you should begin this as soon as possible
- Assess practical expedients for transitional or ongoing benefit, such as exemptions for short-term leases (12 months or less) and low-value assets
Step 2: Gathering data
Your finance team will need more granular information than before.
- Compile data on lease terms, renewal options, variable rents, revenue contracts, performance obligations and termination rights
Completing this repository early will save you time and uncertainty later. It will also enable accurate transition calculations as your next step.
Step 3: Transition calculations
This is where technical adjustments are determined.
Key judgements and estimates are made at this stage and should be fully documented, as accuracy here underpins audit readiness.
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Calculate and recognise lease liabilities at present value, and right-of-use assets applying chosen expedients
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Reassess revenue timing under revenue timing under the new five-step model (listed in our article here) focussing on transfer of control, and calculate any tax or deferred tax impacts
Step 4: Tax impacts
The amended FRS 102 will create new temporary differences.
- Align deferred tax adjustments with year-end computations
Step 5: Systems & controls
- Transition changes must be embedded operationally, including any updates to ERP tools for lease postings and revenue tracking
- Consider automation tools for lease management to reduce manual errors
- Train teams and embed new KPIs
While the initial investment of effort will be largely one-off in the year of transition, you will still require ongoing systems and controls maintenance to ensure that contract data is accurate and complete.
Step 6: Disclosure preparation
- Prepare expanded lease and revenue disclosures and judgement notes
- Draft illustrative templates for audit committees and ensure consistency across group entities
Communication is key
To help this process run as smoothly as possible:
- Share impacts internally across finance and operations and externally with auditors, lenders and investors to avoid surprises
- Engage early with auditors to confirm interpretations and avoid last-minute adjustments
How we can help
The transition to the new reporting requirements need not be chaotic. We’re experienced at guiding business owners and their teams through the practical impacts of implementing new accounting standards and can help you navigate the changes.
For a chat about how we can help your business to prepare for the FRS 102 changes, send us an enquiry or get in touch with your usual BKL contact today.
You can read more about our accounting advisory service here.
