Under the FRS 102 periodic review 2024 amendments, effective for accounting periods beginning on or after 1 January 2026, lease accounting changes from a largely off-balance-sheet exercise into something much closer to IFRS 16. Almost every lease a business holds, property, vehicles, equipment, and contracts that do not call themselves leases at all, now needs to be recognised as a right-of-use asset and a matching lease liability.
For an SME finance team or a private-equity portfolio company without a dedicated technical accountant, that is a meaningful shift. A missed lease is not a rounding error. It is a control failure with three direct consequences.
1. Understated liabilities and distorted ratios
A lease liability left off the balance sheet understates debt and overstates EBITDA, since the old operating lease charge disappears and is replaced by depreciation and interest. Lenders and investors who track gearing or interest cover against covenant thresholds will see numbers that do not match the business's actual commitments. For a portfolio company reporting quarterly to a PE house, that discrepancy surfaces at the worst possible time, during a lender review or a refinancing.
2. Audit findings that compound
Auditors test completeness of the lease population as a matter of course. A contract sweep that only looks for agreements labelled "lease" will miss embedded leases inside service contracts: a managed print agreement, a dedicated delivery vehicle written into a logistics contract, a ring-fenced server inside a hosting deal. Finding these late, during fieldwork rather than before it, moves a minor adjustment into a management letter point, and a repeated management letter point into a modified opinion.
3. Decisions made on the wrong numbers
Pricing, bonus targets, and valuation multiples often reference EBITDA. A lease missing from the register inflates that figure, sometimes for years, until a new auditor or a buy-side diligence team finds it. By then the correction is retrospective and uncomfortable, not a one-line adjustment.
The controls that catch it
- A full contract sweep across every department, not just facilities and property, covering any agreement running longer than 12 months.
- A central lease register recording start date, term, renewal options, break clauses, and discount rate assumptions.
- A named owner for the register, with a quarterly reconciliation against new supplier contracts and terminations.
- Early modelling of the balance sheet and covenant impact, run well before the 1 January 2026 effective date rather than in the month it lands.
None of this requires a full-time technical accounting hire. It requires someone with the FRS 102 knowledge to run the sweep once, build the register properly, and hand over a process the existing team can maintain. That is the specific gap a fractional or interim CFO is built to close: a defined number of days a month, a concrete deliverable, and an exit once the control is in place.
If the last full lease review predates this year, the register is probably missing more than one contract.
