IFRS 16 Leases: What's The Big Deal?

In fact, there isn't just one big deal, but several little deals, and this is exactly why this standard is so complex. With each page you turn and brochure you read, another exception, complexity, or exemption is revealed.

Currently IFRS 16 is all the rage and, if you're not talking about it, you probably feel like you're missing something. Why? What is it about this standard that has everyone up in arms? Well, like its not-too-distant cousin IFRS 9, it promises an enormous impact on financial statements and has many a corporation scratching its head about how and to which extent they will be affected.

Hello, can you hear me...

If you've had your head in the sand about the practical implications of this standard, you might want to listen in for just one moment to see which types of leases will be most significantly affected:

leases with termination and renewal options leases with variable payments sub-lease agreements intercompany leases lease payments bundled with service charges leases with a restoration provision on property No need to break into a cold sweat if many of these apply to you. It simply means that you have a little bit more to think about than the rest of us, and possibly some light reading to do during the weekend.

How can I lease thee? Let me count the ways

Let's look at just three of the above lease scenarios and I'll highlight why each one poses its own challenge:

1. leases with termination and renewal options Assessing the lease term is tricky due to its subjective nature—the lessee needs to decide if it is reasonably certain that a lease term will extend beyond a renewal or termination option. And, true to form, the words "reasonably certain" are not clearly defined, although some additional guidance is provided in IFRS16.B34-41.

   Do take care here, as an accurate assessment of the lease term is pivotal in determining the discount rate used to calculate the present...