Implementation of lease incentives (IFRS 16)

Date recorded:


The Board will discuss the potential for confusion about the treatment of lease incentives being caused by an illustrative example accompanying IFRS 16. IFRS 16:IE13 presents two lease incentives: one concerning the lease and one concerning leasehold improvements. The example suggests that the incentives relating to the leasehold improvements and not related to the leased asset, placing it outside the scope of IFRS 16. The explanation provided in the example has raised questions about how to read and apply the definition of lease incentives in IFRS 16.

Staff analysis

The staff accept that the fact pattern and explanation in IFRS 16:IE13 regarding payments from the lessor relating to leasehold improvements could have been drafted more precisely than they were. However, the staff state that Illustrative Examples accompany, but are not part of, a particular IFRS Standard and that they are therefore not authoritative. The paper suggests that when there is any possible confusion between the Standard and an illustrative example, an entity would apply the requirements in the Standard. On this basis there is no need to change IFRS 16:IE13.

Having said that, the staff see benefit in removing the potential for confusion and set out two ways the example could be amended.  

Because the example is not part of a Standard, the change could be made without being publicly exposed. Nevertheless, the staff are proposing that the changes be exposed as part of the annual improvements process.

Staff recommendation

The staff are recommending that the Board propose an amendment to IFRS 16:IE13 in its next Annual Improvements to IFRS Standards Cycle that would remove the incentive related to the leasehold improvements from the fact pattern and solution. 


The Board approved the staff recommendation with nine votes in favor.

In a brief discussion, some members of the Board supported the staff's alternative proposal to expand the fact pattern and some suggested amendments to the wording. Although members are willing to eliminate uncertainties that arise from an illustrative example, changes to IFRS 16.IE13 are viewed critically. Some Members are basically opposed to changing the illustrative examples in this case. One member explains this for instance with concerns that an amendment could also encourage others to submit desired modifications to IFRS 16.

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