Please select your Country

IFRS 16 (Lease Accounting)

IFRS 16: Leases pertains to how leases are recognized, measured, presented and disclosed. Issued January 2016 with go live date of January 1, 2019, IFRS 16 sets out to ensure that lessees and lessors are providing information that most accurately represents the lease transaction. The standard seeks to prevent off-balance sheet operating leases by establishing set principles.

According to IFRS.org, It provides a single leasing account model that requires lessees to recognize assets and liabilities for all leases over 12 months and reasonably sized underlying assets. IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17, so lessors will continue to classify leases as either operating or finance.

IFRS 16 applies to all reporting entities who have operating leases and subleases. Exceptions include lease terms under 12 months or low value underlying assets.

The most impacted industries will be insurance companies, banks, energy, telecommunications, media, pharma, construction, retail and distribution

According to PWC, “IFRS 16 may also impact business models and offerings as lease needs and  behaviours of lessees change. It may also accelerate existing market developments in leasing such as an increased focus on services rather than physical assets. Changes to the lease accounting standard will impact lessees’ business processes, systems and controls. Lessees will require more detailed data around their leases given the on balance sheet accounting for almost all leases. Companies will need to take a cross-functional approach to implementation, not just accounting.”

IFRS reporting entities who have operating leases will now have to create and manage their inventory of leases. They’ll also have to contend with new calculations related to elements and journal entries, including:

  • Right of Use Asset
  • Lease Liability
  • Interest Expense
  • Depreciation

Discover how CCH Tagetik Performance Management Software delivers:

IFRS 16 - Lease Accounting