IFRS 16 Leases includes a broad range of transition relief and ongoing practical expedients designed to facilitate the adoption and ongoing application of the requirements for lessees to recognise lease right-of-use assets and lease liabilities. The AASB and MASB reviewed financial statements and held interviews with a wide range of stakeholders in Australia and Malaysia. They found that the predominant view of stakeholders is that the transition and ongoing practical expedients provided in IFRS 16 are generally understandable and clear.

Preparers were generally very appreciative of the range of transition relief and ongoing practical expedients available to them, auditors generally considered that their clients’ use of transition relief and ongoing practical expedients was manageable and did not create any abnormal audit concerns and the users interviewed appeared to have been well-informed about the transition relief and ongoing practical expedients available to lessees, and understood the choices being made.

However, the research report also notes that it might be beneficial for the IASB to more formally set out factors that should be considered when setting transition relief and ongoing practical expedients. Based on the research performed for the report, the following factors emerged as being important:

• The likely starting point for reporting by the various IFRS stakeholders who will need to adopt the new requirements is important for determining transition relief.
• Providing transition relief and/or ongoing practical expedients based on ‘bright lines’ can provide much needed clarity for all stakeholders.
• Providing flexibility around the scale at which the transition relief or ongoing practical expedients can be applied is important to minimising costs for preparers.
• The design of transition relief or an ongoing practical expedient that has countervailing incentives underpinning its use can be very effective.
• Consideration should be given to the various potential flow-on effects of an ongoing practical expedient
• While the IASB already has a thorough due process, specific consideration should be given to seeking input from users on their tolerance for, and understanding of, the application of various forms of transition relief or ongoing practical expedients.
• The IASB’s deliberations and conclusions on whether the application of ongoing practical expedients might have a material impact on an entity’s reported financial position or performance should be given prominence in educational material.

Please click to access the full report on the MASB website.