Transition from IAS 17 to IFRS 16

IFRS 16 introduces a few practical expedients at the date of its application and transition from IAS 17 as discussed below.

Entities are permitted not to reassess whether their contracts that are in force at the date of initial application of IFRS 16 are leases (or contain leases). Instead, IFRS 16 can be applied to contracts identified as leases under IAS 17 and IFRIC 4 (IFRS 16.C3-C4).

Lessees are relieved from full retrospective application as specified in IAS 8. Instead, a so-called ‘modified retrospective’ approach can be used. Under this approach, comparative data is not modified and the cumulative effects of applying IFRS 16 are recognised at the date of initial application of this standard as an adjustment to the opening balance of equity (IFRS 16.C5-C7).

Leases previously classified as operating leases should be recognised under a modified retrospective application as described in paragraphs IFRS 16.C8-C9. Additional practical expedients are included in IFRS 16.C10.

Application of IFRS 16 using the modified retrospective method goes with an attached requirement to reconcile the operating lease commitments disclosed under IAS 17 and lease liabilities recognised on initial application of IFRS 16 (IFRS 16.C12).

As noted earlier, IFRS 16 has specific provisions for sale and leaseback transactions. Transition requirements for these transactions are set out in paragraphs IFRS 16.C16-C18.

Before IFRS 16, IFRS 3 required to recognise as separate assets/liabilities favourable or unfavourable terms of an operating leases acquired in a business combination. On transition to IFRS 16, these assets/liabilities should be derecognised and their amount should adjust the carrying amount of the right-of-use asset (IFRS 16.C19).

See other pages relating to IFRS 16:

IFRS 16 Leases: Scope of IFRS 16

IFRS 16 Leases: Identifying a Lease

IFRS 16 Leases: Lease Term

IFRS 16 Leases: Recognition and Measurement of Leases

IFRS 16 Leases: Lessor accounting


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Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, The information provided on this website does not constitute professional advice and should not be used as a substitute for consultation with a certified accountant.