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.
Open the free tool
For finance teams, controllers, and auditors
IFRS 16 Lease Term Assessment
This free, guided checker walks your finance team through the key decision points for IFRS 16 Lease Term Assessment. Answer a few questions to see the likely treatment and the evidence to document.
12 guided steps
Private in your browser
Official guidance links
Start the free checker
Your free guided checker
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
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.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Is the contract within IFRS 16 lessee scope and not exempt from recognition?
The short-term (12 months or less, no purchase option) and low-value recognition exemptions in IFRS 16.5 let a lessee expense payments without measuring a lease term for right-of-use recognition. Confirm the contract is within scope and that no exemption has been elected before running the term assessment. The trap is starting a full term analysis for a lease the entity has already elected to keep off balance sheet under the exemption.
Apply the short-term or low-value recognition exemption, or the applicable alternative standard (IFRS 16.5).
Official guidance: IFRS issued standards
Has the non-cancellable period of the lease been identified from commencement?
The lease term starts at the commencement date and is built from the non-cancellable period plus optional periods that are reasonably certain (IFRS 16.18). Identify the enforceable period first: a lease is no longer enforceable once both parties can terminate with no more than an insignificant penalty (IFRS 16.B34). Read side letters and related contracts, because the enforceable period can differ from the stated contractual term.
Identify the enforceable non-cancellable period from the contract and any side letters (IFRS 16.18, IFRS 16.B34).
Official guidance: IFRS issued standards
Are lessee extension options present that could extend the lease beyond the non-cancellable period?
An extension option lets the lessee lengthen the lease beyond the non-cancellable period. Include the optional period only when, at the commencement date or a later reassessment, the lessee is reasonably certain to exercise the option based on economic incentives (IFRS 16.18, IFRS 16.B37). Identify every extension option in the contract before weighing whether exercise is reasonably certain.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Is exercise of the lessee extension option reasonably certain at the assessment date?
Reasonably certain is a high threshold assessed from economic incentives at the assessment date, not management intent alone. Weigh below-market renewal rates, significant leasehold improvements the lessee would forfeit, relocation and reinstatement costs, the importance of the asset to operations, and historical renewal practice (IFRS 16.B37, IFRS 16.B40). The common trap is defaulting to the non-cancellable period and ignoring incentives that make renewal economically compelling.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Are lessee early termination options present and have termination penalties been evaluated?
A lessee early termination option can shorten the lease term. Under IFRS 16.19 the lease term includes periods after an option to terminate only if the lessee is reasonably certain not to exercise it. Evaluate the penalty payable and any related restoration, relocation, or business-disruption costs, because a significant penalty makes early termination less likely.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Is the termination penalty insignificant such that the lessee is not reasonably certain to avoid early termination?
Weigh the significance of the termination penalty together with the wider economic consequences of leaving early. Significant penalties, forfeited leasehold improvements, restoration costs, or business disruption generally support a conclusion that the lessee is reasonably certain not to terminate, so the term runs through the option (IFRS 16.B37, IFRS 16.B40). An insignificant penalty points the other way, shortening the term to the earliest termination date.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
Are lessor termination options that only the lessor can exercise excluded from the lease term?
An option that only the lessor can exercise to terminate the lease is disregarded when determining the lease term: it does not shorten the term, because the lessee has an enforceable right to use the asset through those periods (IFRS 16.B35). Only options the lessee controls, or mutual break clauses with no more than an insignificant penalty, can reduce the enforceable period (IFRS 16.19, IFRS 16.B34). The trap is shortening the lease term for a break right that rests solely with the lessor.
Disregard lessor-only termination options so they do not shorten the lease term (IFRS 16.B35).
Official guidance: IFRS issued standards
Has a purchase option been assessed for reasonably certain exercise?
Assess a purchase option using the same reasonably certain factors as extension options (IFRS 16.B37). When the lessee is reasonably certain to exercise, include the exercise price in the lease payments (IFRS 16.27(e)) and depreciate the right-of-use asset over the underlying asset's useful life rather than the lease term (IFRS 16.32). The trap is treating a bargain purchase option as a routine end-of-term choice and depreciating only over the shorter lease term.
Assess the purchase option economics for reasonably certain exercise before finalising the lease term (IFRS 16.B37).
Official guidance: IFRS issued standards
Have economic incentives including leasehold improvements and relocation costs been documented?
The reasonably certain conclusion must be supported by contemporaneous evidence of economic incentives, not asserted. Document significant customised leasehold improvements the lessee would forfeit, relocation and reinstatement costs, the strategic importance and location of the asset, and any below-market option pricing (IFRS 16.B37, IFRS 16.B40). Weak or missing documentation is a frequent audit finding on lease term judgements.
Gather and document the economic incentive evidence before concluding on optional periods (IFRS 16.B37).
Official guidance: IFRS issued standards
Has the aggregated enforceable lease term been calculated and approved?
Aggregate the lease term as the non-cancellable period plus extension periods the lessee is reasonably certain to exercise and less periods after a termination option the lessee is reasonably certain to exercise (IFRS 16.18). Confirm the term drives the discount-rate period, the lease liability measurement, and the depreciation period. Obtain documented approval, because the term is a significant judgement that affects the reported liability.
Complete the aggregated lease term calculation and obtain approval before recognition (IFRS 16.18).
Official guidance: IFRS issued standards
Has a reassessment trigger monitoring process been established for lease term changes?
IFRS 16.20-21 requires the lessee to reassess whether it is reasonably certain to exercise options when a significant event or change in circumstances within its control occurs, such as constructing significant leasehold improvements or a decision to relocate. Establish a control that captures these triggers and feeds a remeasurement of the lease liability where the term changes (IFRS 16.40). The trap is treating the commencement-date term as fixed and never revisiting it.
Implement lease term reassessment monitoring controls for significant events within the lessee's control (IFRS 16.20-21).
Official guidance: IFRS issued standards
Are lease term judgments and optional period disclosures prepared?
Disclose the significant judgements made in determining the lease term, including how reasonably certain conclusions on extension, termination, and purchase options were reached, and the potential effect of options not reflected in the term (IFRS 16.59(b), IAS 1.122). Tie the disclosures to the maturity analysis and right-of-use asset movements. The trap is boilerplate that does not explain the entity-specific incentives driving the term.
The lease term assessment and its supporting disclosures are complete (IFRS 16.59). Complete the lease term judgement and optional-period disclosures before finalising the statements (IFRS 16.59).
Official guidance: IFRS issued standards
Want a professional to confirm your answer?
Send us your situation and one of our senior CPAs will review it with you - fixed fee, no surprises.
Contact Us