IFRS 16 requires lessees and lessors to provide information about leasing activities within their financial statements. The Standard explains how this information should be presented on the face of the statements and what disclosures are required. In this article we identify the requirements and provide a series of examples illustrating one possible way the note disclosures might be presented.
When it comes to the notes, the Standard tends to focus on the details of the information to be provided, leaving it to preparers to decide on the most meaningful way to present it. As a result, your specific disclosures may not look exactly the same as the ones we’ve chosen.
For a lessee, a lease that is accounted for under IFRS 16 results in the recognition of:
- a right-of-use asset and lease liability
- interest expense (on the lease liability)
- depreciation expense (on the right-of-use asset).
The right-of-use asset and lease liability must be presented or disclosed separately from other, non-lease assets and liabilities (except for investment property right-of-use assets which are presented as investment property). Where a lessee chooses not to present its right-of-use assets separately on the face of the balance sheet, they must be presented in the same line item that would be used if the underlying asset were owned. In many, but not all, cases this will be property, plant and equipment.
In the statement of cash flows, lease payments are classified:
- as a financing activity for amounts relating to the repayment of the principal portion of the lease liability
- in the same classification as interest paid on other forms of financing (ie, as either a financing or operating activity) for amounts relating to interest charged on the lease liability
- as operating activities for amounts relating to short-term and low-value asset leases that are accounted for off-balance sheet and for variable payments not included in the lease liability.
For a lessor, the requirements are largely the same as IAS 17’s:
- for finance leases the net investment is presented on the balance sheet as a receivable, and
- assets subject to operating leases continue to be presented according to the nature of the underlying asset.
IFRS 16 requires different and more extensive disclosures about leasing activities than IAS 17. The objective of the disclosures is to provide users of financial statements with a basis to assess the effect of leasing activities on the entity’s financial position, performance and cash flows. To achieve that objective, lessees and lessors disclose both qualitative and quantitative information.
For lessees, this information is required to be presented in a single note or as a separate section of the financial statements. Information already included in other notes need not be repeated as long as it is appropriately cross-referenced.
For more detail on the disclosure requirements and for illustrative disclosures download the full IFRS 16 - Presentation and disclosure article. [ 227 kb ]