FRS 102 vs IFRS 16: Key differences finance teams need to know

FRS 102 Section 20, revised and effective for accounting periods beginning on or after 1 January 2026, is deliberately built on the same foundation as IFRS 16. If your organisation understands IFRS 16, you already understand the architecture of the new FRS 102 model: a right-of-use (ROU) asset, a corresponding lease liability, and on-balance-sheet recognition for most leases. The core economics are the same. The differences are specific, and that is what this article addresses directly.

This comparison is written for finance professionals who work with IFRS 16 (directly or as a reference point) and need to understand what FRS 102 does differently. It is also useful for LOIS customers in Australia and New Zealand whose group entities report under UK GAAP. For a grounding in the FRS 102 changes before reading the comparison, see FRS 102: what UK businesses need to know about the new standard. For the mechanics of how right-of-use assets work under the international standard, see what is a right-of-use asset? A plain-English IFRS 16 guide.

Updated May 2026.

The short answer: more aligned than different

FRS 102 Section 20 and IFRS 16 share the same core lessee model, requiring recognition of a right-of-use asset and lease liability for most leases, with identical depreciation and interest unwind mechanics. A system already configured for IFRS 16 will handle around 80% of FRS 102 without modification. Both standards exempt short-term leases (12 months or less) and classify subleases by reference to the ROU asset.

The remaining 20% is where finance teams need to pay attention. Three differences carry real operational weight: the discount rate options, the low-value exemption rules, and the transition approach. A fourth, portfolio discount rates, is a useful simplification that FRS 102 makes more explicit than IFRS 16. The comparison table below maps all dimensions side by side before we examine each material difference in detail.

FRS 102 vs IFRS 16: side-by-side comparison

The table below summarises the key dimensions. The sections that follow explain what each difference means in practice.

The obtainable borrowing rate: the most significant practical difference

The obtainable borrowing rate (OBR) is a discount rate option introduced by FRS 102 Section 20 that has no equivalent under IFRS 16. It is defined as the rate a lessee would pay to borrow, over a similar term, an amount equal to the total undiscounted value of lease payments, making it simpler to determine than the incremental borrowing rate (IBR) because it references the lease payments already in the contract rather than requiring a broader entity creditworthiness assessment.

Under IFRS 16, when the rate implicit in the lease cannot be readily determined, the lessee must use the IBR: the rate a lessee would pay to borrow funds over a similar term, with similar security, to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. For a group finance controller working on a UK subsidiary's standalone accounts, that assessment can mean commissioning an external benchmarking exercise, particularly if the entity has limited bank borrowing history or its treasury function sits at group level under a different standard.

The OBR sidesteps much of that work. The figures are already in the lease contract; the question is simply what rate the entity would pay to borrow that specific amount over that specific term. In practice, the OBR and IBR will often produce similar results, since both are driven by the lessee's cost of borrowing in the relevant market. The difference is largely administrative: the evidentiary burden for the OBR is lower, and the documentation is more straightforward to prepare and defend in an audit.

For a detailed explanation of how the ROU asset and lease liability are initially measured under FRS 102 Section 20, including the role of the OBR in that calculation, see our guide: FRS 102 right-of-use assets: a plain-English guide. For the equivalent IFRS 16 mechanics, see what is a right-of-use asset? A plain-English IFRS 16 guide.

Low-value exemptions: FRS 102 excludes vehicles by asset class, not by value

Under FRS 102, vehicles cannot qualify for the low-value exemption regardless of their individual value, which is a direct and material departure from IFRS 16's indicative USD 5,000 threshold approach. FRS 102 uses positive and negative asset class lists rather than a monetary filter, explicitly excluding vehicles, land and buildings, construction equipment, farming equipment, boats, and ships from low-value treatment no matter what they were worth when new.

Under IFRS 16, the low-value assessment is asset-by-asset and independent of the lessee's size. The standard does not prescribe which classes can or cannot qualify, meaning a car lease where the vehicle was worth under USD 5,000 when new could theoretically qualify, though this is uncommon given modern vehicle prices. There is no class-based exclusion.

FRS 102 takes a fundamentally different approach. The standard provides:

• Assets that may qualify as low-value: office furniture, small printers, laptops, tablets, and telephones.
• Assets that cannot qualify, regardless of value: vehicles, land and buildings, construction equipment, farming equipment, boats, and ships.

A logistics company leasing 200 light commercial vehicles cannot apply the low-value exemption to any of those leases under FRS 102, even if each individual vehicle was worth well under USD 5,000 when new. Every vehicle lease must go on the balance sheet. The same applies to construction equipment and farming machinery. For sectors where these asset classes dominate the lease portfolio, the FRS 102 low-value rules materially increase the volume of leases requiring full on-balance-sheet treatment.