IFRS 9 Explained
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π 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
π 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.
π« 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
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π€ 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.
π’ 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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