We have commented on the IFRS Interpretations Committee's publication in the June 2019 IFRIC Update of the tentative decision not to take onto the Committee's agenda the request for clarification on the determination of the lease term and useful life of leasehold improvements.

We disagree with the Committee decision not to take the issue of how to determine the lease term of a cancellable lease or a renewable lease onto its standard-setting agenda. This issue highlights a key difficulty that entities and their auditors face in the application of IFRS 16 which is the assessment of whether a contract continues to be enforceable if both parties have termination rights but at least one of the parties would suffer a more than insignificant penalty if they were to exercise their right (i.e., whether economic disincentive to the exercise of a termination right is relevant to the assessment of whether a lease contract continues to be enforceable).

Download the full comment letter below.

Download