IFRS 16 Lease Discount Rate
This free, guided checker walks your finance team through the key decision points for IFRS 16 Lease Discount Rate. Answer a few questions to see the likely treatment and the evidence to document.
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IFRS 16 Lease Modification Assessment
This free, guided checker walks your finance team through the key decision points for IFRS 16 Lease Modification Assessment. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Has the enforceable scope or consideration of an existing lease changed?
A lease modification is a change in the scope of a lease, or in the consideration for a lease, that was not part of its original terms and conditions, and it requires an enforceable amendment agreed by both parties. Distinguish it from a reassessment: changes in index- or rate-based payments, or in the reasonably certain assessment of options, follow the remeasurement rules in IFRS 16.40-43 rather than modification accounting. The common trap is treating a contractual amendment and a reassessment the same way, because the discount-rate and gain or loss mechanics differ.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Was the change negotiated as a rent concession rather than a scope or term amendment?
A rent concession reduces, forgives, or defers lease payments (for example a rent holiday or reduced rent for a period) without changing the scope or term of the lease. Test eligibility for the practical expedient in IFRS 16.46B before defaulting to modification accounting, because the expedient lets a lessee account for the change as if it were not a modification. Weigh whether the revised consideration is substantially the same as or less than the original and whether any reduction affects only payments originally due on or before the eligibility date.
Assess the practical expedient in IFRS 16.46A-46B for the eligible rent concession before defaulting to full modification accounting.
Official guidance: IFRS issued standards
Has a reassessment of lease term or purchase option been triggered without contract change?
Even without a contract change, IFRS 16.20-21 requires the lessee to reassess the lease term or a purchase option when a significant event or change in circumstances within its control affects whether exercise is reasonably certain. A reassessment remeasures the liability using revised payments and, where the term or purchase-option assessment changes, a revised discount rate (IFRS 16.40-43). The trap is applying modification accounting to what is really a reassessment, or overlooking a genuine trigger such as constructing significant leasehold improvements.
Remeasure the liability for the reassessment using the original discount rate for index or rate changes, or a revised rate for term or purchase-option changes (IFRS 16.40-43). Do not apply modification or remeasurement accounting without an enforceable contract change or a qualifying reassessment trigger (IFRS 16.44).
Official guidance: IFRS issued standards
Does the change add the right to use one or more underlying assets?
An increase in scope adds the right to use one or more underlying assets, for example additional floor space, an extra vehicle, or a further unit, beyond the rights in the original lease. Contrast this with a change that only revises price or extends the term of the existing right of use, which is not an added underlying asset. Evidence to weigh includes the amended contract's description of the leased asset and any floor-plan or capacity schedule.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Is the added consideration commensurate with the standalone price for the increased scope?
Compare the additional consideration to the standalone price for the increased scope, adjusted for the circumstances of this particular contract (IFRS 16.44(b)). A modest, supportable adjustment for contract-specific factors is acceptable, but a substantive discount indicates the added right is not priced at standalone value. The trap is accepting a discounted price as commensurate and wrongly recognising a separate lease instead of a single non-separate modification.
Account for the added right of use as a separate lease and leave the original lease unchanged (IFRS 16.44).
Official guidance: IFRS issued standards
Does the modification decrease the scope of the lease?
A scope decrease removes part of the right of use, such as returning floor space, releasing an asset, or shortening the lease term. Under IFRS 16.45(a) the lessee decreases the carrying amount of the right-of-use asset to reflect the partial or full termination and recognises a gain or loss for the difference. Other modifications that do not decrease scope are handled under IFRS 16.45(b) by remeasuring the liability with a corresponding adjustment to the right-of-use asset.
Decrease the right-of-use asset for the terminated portion, recognise the resulting gain or loss, then remeasure the remaining liability (IFRS 16.45(a)).
Official guidance: IFRS issued standards
Has the revised discount rate been determined at the modification effective date?
For a modification that is not a separate lease, remeasure the lease liability at the effective date using the revised lease payments discounted at a revised rate: the rate implicit in the lease if readily determinable, otherwise the lessee's incremental borrowing rate at that date (IFRS 16.45). Document the rate and its inputs before posting entries. The common misapplication is continuing to use the original discount rate, which is appropriate only for index or rate reassessments under IFRS 16.43, not for modifications.
Remeasure the liability using revised payments and the revised discount rate, adjusting the right-of-use asset at the effective date (IFRS 16.45(b)). Document and approve the revised discount rate at the effective date before posting the remeasurement entries (IFRS 16.45).
Official guidance: IFRS issued standards
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