Lease accounting (ASC 842 / IFRS 16)

One standard, almost no exceptions

IFRS 16 removed the distinction that used to let a business keep office or warehouse rent off its balance sheet as a simple monthly expense. Almost every lease running past twelve months now sits on the balance sheet as a right-of-use asset with a matching liability, and unlike the US standard, IFRS 16 barely bothers separating operating from finance leases in how that plays out.

Finding the leases nobody labelled as leases

Groups spanning several member states rarely start with a complete lease register. Equipment sitting inside a supplier contract, or a service agreement that never uses the word lease anywhere in it, both routinely meet the standard's actual definition without being filed under a lease heading anywhere. Pulling that inventory together across entities, and testing each agreement against the definition rather than trusting its label, comes first.

Turning a lease into two numbers

Once a lease qualifies, the remaining payments are discounted, generally at the entity's own incremental borrowing rate, to produce the opening liability and the matching right-of-use asset. A monthly schedule then carries both forward, depreciating the asset and running interest on the liability for as long as the lease has left to run.

Where the standard gives room

Short-term leases at or under twelve months with no renewal reasonably certain, and separately, low-value asset leases, can stay off balance sheet under IFRS 16's own practical expedients. We apply those only where an agreement genuinely fits the exemption, not as a default to shrink the register.

This usually sits inside a wider IFRS conversion or US GAAP conversion, with the monthly postings running through the same prepaid schedules process as other multi-period costs.