The IFRS 16 accounting standard determines the requirements for recognising, measuring, presenting and disclosing leasing agreements in company financial statements.
What’s it all about?
- What is IFRS 16?
- Which leases must be taken into account?
- For whom is IFRG 16 relevant?
What is IFRS 16?
IFRS 16 is an accounting standard. As such, the standard regulates the rules about accounting, measuring, presenting and disclosing leasing agreements in company financial statements. However, this only applies to companies with accounting systems that adhere to the IFRS (International Financial Reporting Standards) published by the IASB (International Accounting Standards Board).
Scope of IFRS 16 application
In simple terms, this means that under IFRS 16, all traditional leasing agreements, including subleases, must be taken into account in the company’s financial statement. This includes, for example, leasing agreements for vehicles or technical plant, as well as rental contracts and leases for real estate.
IFRS 16 relevance
Accounting in accordance with IFRS 16 is relevant to both lessee and lessor:
- Lessees must record on their balance sheet all assets and liabilities arising from leasing agreements. Leasing agreements with a term of up to twelve months are exempt from this requirement. Low-value assets are another exception.
- Lessors must distinguish between finance leases and operating leases in their accounting according to accounting purpose. In this regard, the accounting model in IFRS 16 deviates only slightly from the earlier standard IAS 17 “Leases”.