This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

IASB issues new leasing standard

  • IASB document Image

Jan 13, 2016

The IASB has issued IFRS 16, “Leases,” which brings most leases on the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. For lessors, however, the accounting remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, “Leases,” and related interpretations.

Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other nonfi­nan­cial assets and de­pre­ci­ated ac­cord­ingly, and the liability accrues interest. The lease liability is initially measured at the present value of the lease payments payable over the lease term, dis­counted at the rate implicit in the lease if this rate can be readily de­ter­mined. If the rate cannot be readily de­ter­mined, the lessee’s in­cre­men­tal borrowing rate should be used.

Like IAS 17, IFRS 16 requires lessors to classify leases as operating or finance leases. A lease is clas­si­fied as a finance lease if it transfers sub­stan­tially all the risks and rewards of ownership of an un­der­ly­ing asset. Otherwise, the lease is clas­si­fied as an operating lease.

For finance leases, a lessor recognizes finance income over the lease term on the basis of a pattern re­flect­ing a constant periodic rate of return on the net in­vest­ment. A lessor recognizes operating lease payments as income on a straight-line basis or, if more rep­re­sen­ta­tive of the pattern in which benefit from use of the un­der­ly­ing asset is di­min­ished, another sys­tem­atic basis.

IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier ap­pli­ca­tion is permitted if IFRS 15, Revenue From Contracts With Customers, has also been applied.

Editor's Note: The FASB is currently finalizing its new leases standard and is expected to issue it in February 2016. We expect the FASB’s new standard on lease accounting will be effective for public business entities for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein. For all other entities, the standard would be effective for annual periods beginning after December 15, 2019 (i.e., calendar periods beginning on January 1, 2020), and interim periods thereafter. Early adoption would be permitted for all entities.

IFRS 16, Leases, is available on the IASB's eIFRS Web site (subscription required). For more information, see the press release, project summary, effects analysis, and fact sheet on the IASB’s Web site. Also see the following Deloitte resources:

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.