IFRS 16 Overview

The New Lease Accounting Standard for International Financial Reporting

What is IFRS 16?

IFRS 16 is a new lease accounting standard published by the International Accounting Standards Board (IASB) in January 2016. This new standard changes the way that companies account for leases in their financial disclosures, especially their balance sheets and profit and loss statements. IFRS 16 replaces an earlier international lease accounting standard – IAS 17. IFRS 16 will be effective for reporting periods beginning on or after 1 January 2019 for entities reporting under international financial reporting standards.

Impacts to Financial Statements

IFRS 16

Impact to the Balance Sheet

With IFRS 16, almost all leases will be reported on corporate balance sheets. A new right-of-use (ROU) asset will be presented separately on the balance sheet, as will a separate lease liability. Under the current standard, IAS 17, only certain lease arrangements – called finance leases – were listed on the statement of financial position while operating leases were only reported in the footnotes. Under IFRS 16,  all leases will now be considered finance leases unless they meet certain exceptions and will be reported on the statement of financial position. Key financial metrics such as Return on Assets will be influenced through the addition of these new assets and liabilities to the balance sheet.

IFRS 16

Impact to the Income Statement

Companies must report a depreciation charge for leased assets within the operating costs section of the profit and loss statement. An interest expense must be reported for lease liabilities within the finance costs section of the profit and loss statement. Under the current standard, IAS 17, companies reported a straight-line lease expense that was typically the same in each period of the lease. With IFRS 16, the expenses for leases will be front-loaded as the amount of interest is reduced over the term of the contract.

IFRS 16 Calculator

Volkswagen Financial Services Fleet launched an IFRS 16 Calculator to calculate the lease liability, right-of-use asset, interest, and depreciation expense.

IFRS 16 Lease Accounting Guides

Technical Standards Documentation from the Big Four and Accounting Boards

The International Accounting Standards Board’s resource page for the new leasing standard includes links to supplemental materials, like webcasts and articles.

The KPMG Guide outlines the requirements of IFRS 16, the impacts to the balance sheet and income statements, and the transition options.

PwC's videos review the impact of the new IFRS 16 leasing standards on how the value of right-of-use assets are measured, as well as key performance indicators.

Deloitte models what financial statements would look like for companies under IFRS 16 in this appendix to the International GAAP Holdings Limited Model.

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