A guide to the incremental borrowing rate — Assessing the impact of IFRS 16 'Leases'
The issuance of IFRS 16 Leases has resulted in a significant number of companies expecting to see material changes in the presentation of their financial statements as a result of bringing operating leases onto the balance sheet and changing the way in which expenses are recorded in the income statement. The discount rate assumption is one of the most important judgements that management will need to make and the one which may have the largest quantitative impact on the lease asset and liability valuations.
This short paper sets out how companies could choose to meet this requirement, both in terms of the theory but also in terms of the data and approaches available to financial statement preparers to enable them to select appropriate discount rates at transition and on an ongoing basis.
