Adviser alert – Insights into IFRS 16 – Lease term

The Grant Thornton International IFRS team has updated the document Insights into IFRS 16 – Lease term.

The document Insights into IFRS 16 – Lease term was updated to reflect the latest thinking in this area, including the November 2019 Agenda decision on Lease Term and Useful Life of Leasehold Improvements issued by the IFRS Interpretations Committee (IFRIC).

The document now covers how an entity determines the lease term of a cancellable lease or a renewable lease and provides additional examples in this regard.

The issue

Determining the lease term under IFRS 16 is significant.

Firstly, the longer the lease term, the larger the lessee’s right-of-use asset and lease liability will be.

Secondly, the length of the lease term determines whether a lease qualifies for the short-term lease exemption.

Finally, IFRS 16 contains additional application guidance on how to deal with periods covered by options to extend or terminate a lease. While the new detailed guidance can be helpful, it also means there is more to consider when determining the lease term.

This document explains the key aspects of determining the lease term at commencement date and when it should be reassessed.

The Insights into IFRS 16 series provides insights on applying IFRS 16, Leases, in key areas. Each edition focuses on an area of IFRS 16 to assist you in applying the guidance in the standard.