IFRS 16 Explained
What changed from IAS 17, on one page.
📅 Effective Date
January 1, 2019.
IAS 17 (Leases)
IFRIC 4, SIC-15, and SIC-27
Right-of-Use (ROU) Asset
Lease Liability
Predecessor Standard
Big Changes
🔍 Scope: What is Covered?
IFRS 16 applies to all leases and subleases, including the lease of right-of-use assets, with very few exceptions. A contract contains a lease if:
Identified Asset: There is an explicitly or implicitly specified asset that the lessor cannot easily substitute.
Control of Use: The customer has the right to obtain substantially all economic benefits from using the asset throughout the period.
Direction of Use: The customer has the right to direct how and for what purpose the asset is used.
🚫 Scope Exclusions: What is Out of Scope?
The standard explicitly excludes the following types of contracts, which are managed under other specific IFRSs:
Natural Resources: Leases for the exploration or use of minerals, oil, natural gas, and similar non-regenerative resources (covered by IFRS 6).
Biological Assets: Leases of biological assets held by a lessee (e.g., livestock or crops covered by IAS 41).
Service Concession Arrangements: Public-to-private service arrangements (covered by IFRIC 12).
Intellectual Property: Licenses of intellectual property granted by a lessor (covered by IFRS 15).
Intangible Assets: Rights held by a lessee under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents, and copyrights (covered by IAS 38).
Different Accounting For Lessor and Lessee
Lessors and lessees account for the same lease very differently.
🤝 From the Lessor's Perspective (Unchanged)
Dual Model Remains: Lessors still classify leases as either Operating Leases or Finance Leases.
Accounting Continuity: Lessor accounting rules remain substantially unchanged from IAS 17.
🏢 From the Lessee's Perspective (The Big Change)
Right-of-Use (ROU) Asset: Lessees recognize an asset representing their right to use the leased item.
Lease Liability: Lessees recognize a liability representing their obligation to make lease payments.
Income Statement Impact: Rental expenses are replaced by Depreciation (on the ROU asset) and Interest Expense (on the lease liability).
EBITDA Boost: Operating profit (EBITDA) increases because lease expenses move down the P&L into depreciation and interest.
IFRS 16
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