Transition from IAS 17 to IFRS 16

IFRS 16 became effective in 2019 and introduced several practical expedients for its initial application, easing the transition from IAS 17 (the previous leasing standard).

Definition of a lease

Entities were not required to reassess their existing contracts at the initial application date of IFRS 16 to determine if they are leases (or contain leases). Instead, contracts previously identified as leases under IAS 17 and IFRIC 4 could continue to be treated as such under IFRS 16 (IFRS 16.C3-C4).

Modified retrospective application

Lessees were exempt from the full retrospective application as mandated by IAS 8. They could instead opt for a ‘modified retrospective’ approach. This method did not require restating comparative data. Instead, the cumulative effects of adopting IFRS 16 were recognised as an adjustment to the opening equity balance on the initial application date of IFRS 16 (IFRS 16.C5-C7).

Leases previously classified as operating leases

Leases that were earlier classified as operating leases under IAS 17 had to be accounted for using the modified retrospective approach, as detailed in IFRS 16.C8-C9. IFRS 16.C10 outlined additional practical expedients for these leases.

Disclosure on initial application

When applying IFRS 16 using the modified retrospective approach, entities had to reconcile the operating lease commitments reported under IAS 17 with the lease liabilities recognised at the initial application of IFRS 16 (IFRS 16.C12).

Sale and leaseback transactions

IFRS 16 included specific guidelines for sale and leaseback transactions. The transition requirements for these transactions were specified in IFRS 16.C16-C18.

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Adjustments for business combinations

Prior to IFRS 16, IFRS 3 mandated the recognition of favourable or unfavourable terms of operating leases acquired in a business combination as distinct assets or liabilities. With the transition to IFRS 16, these assets or liabilities had to be derecognised, adjusting the carrying amount of the right-of-use asset accordingly (IFRS 16.C19).

More about IFRS 16

See other pages relating to IFRS 16:

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