More than 720,000 UK businesses face potential fines and financial penalties due to a lack of preparation for new lease accounting regulations set to take effect from 1 January 2026, according to a survey conducted by IRIS Software Group.
The survey found that 24% of respondents remain completely unaware of the changes to the Financial Reporting Standard (FRS) 102 legislation, leaving many companies exposed to legal and financial consequences.
The most notable amendment requires assets acquired through leasing to be reported on balance sheets, significantly increasing the complexity of financial reporting.
Non-compliance with the updated FRS 102 standard could lead to substantial penalties, accumulated unpaid tax, and reputational damage, particularly for larger companies, IRIS Software Group said.
Among those aware of the upcoming changes, 75% acknowledged that their financial reporting processes would need significant adjustments.
Additionally, nearly 89% of respondents said the changes would impact how they lease goods.
Business equipment constitutes 42% of assets leased by UK firms, followed by IT equipment and real estate or property.
The survey highlighted that many businesses are still in the early stages of compliance preparation.
In addition, 38% are still assessing the impact of the amendments, while 34% have yet to inform key stakeholders.
Industrial companies—encompassing manufacturing, construction, and automotive sectors—are considered the most at risk, the data revealed.
Nearly 52% of these companies reported that the new leasing standard would negatively affect their costs, with industrial businesses nearly twice as likely as average to cite resource strain from compliance efforts.
The research also sheds light on current data management practices with 46% of businesses still relying on desktop tools such as Excel to store data and contract information.
Meanwhile, the survey also revealed that 26% of companies have data dispersed across multiple locations, while one in 21% still use paper filing systems.
Of the surveyed businesses, 56% said they are investing in lease accounting software to support compliance with the new FRS 102 standard.
IRIS Software Group said it currently works with 93 of the top 100 UK accountancy firms.
Its software, IRIS Innervision, is designed to automate tasks associated with lease accounting and centralise data to support compliance requirements.
IRIS Accountancy managing director Mark Chambers said: “UK businesses are facing a number of headwinds, but with greater awareness of the challenges coming and taking the time to plan ahead of time can mitigate against some of this risk.
“Firms have an opportunity to move beyond some of their outdated processes to drive more efficient financial reporting, helping to reduce costs and free-up staff time. Tech and software is a proven aid for accounting, helping professionals gather, manage and track data effectively and make year-end reporting far less stressful.”
