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 Low-Value Asset Exemption
This free, guided checker walks your finance team through the key decision points for IFRS 16 Low-Value Asset Exemption. 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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Has the entity elected the low-value asset recognition exemption in its accounting policy?
The low-value exemption in IFRS 16.5(b) is optional; a lessee may instead recognise all leases as right-of-use assets and lease liabilities. Unlike the short-term exemption, which is elected by class of underlying asset, the low-value election is available lease by lease (IFRS 16.8). Document the policy election and the basis used to identify low-value assets. The trap is assuming the exemption applies automatically without a documented policy choice.
Recognise all leases within scope as right-of-use assets and lease liabilities regardless of the underlying asset value (IFRS 16.22).
Official guidance: IFRS issued standards
Is the underlying asset assessed as low value when new using the approximately USD 5,000 benchmark?
Assess the asset's value when new on an absolute basis, independent of the size or circumstances of the lessee, so that different lessees reach the same conclusion (IFRS 16.B4; IFRS 16.B5). IFRS 16.B8 gives examples - tablets, personal computers, small items of office furniture, and telephones; the approximately USD 5,000 reference point that many entities apply is drawn from the Basis for Conclusions (IFRS 16.BC100), not a bright line in the standard. The trap is applying a materiality-style percentage of the lessee's total assets rather than the absolute value of the item when new.
Apply full IFRS 16 lessee recognition because the asset is not of low value when new (IFRS 16.B7).
Official guidance: IFRS issued standards
Is the low-value assessment performed on the underlying asset rather than the entire lease contract?
IFRS 16.B6 permits an asset to be of low value only where the lessee can benefit from it on its own or together with readily available resources, and it is not highly dependent on or highly interrelated with other assets. A lease of many individually low-value assets can qualify even if the total contract payments are significant, because the election is available lease by lease (IFRS 16.B3). The trap is disqualifying a portfolio of small assets by looking at aggregate contract value, or qualifying a component that only works as part of a larger, interrelated asset.
Reassess the exemption at the level of each underlying asset rather than the whole contract (IFRS 16.B6).
Official guidance: IFRS issued standards
Is lease term irrelevant to the low-value exemption unlike the short-term exemption?
The low-value exemption in IFRS 16.5(b) turns on the underlying asset's value when new, assessed on an absolute basis (IFRS 16.B5); it carries no lease-term limit, in contrast to the short-term exemption in IFRS 16.5(a), which applies only to leases of 12 months or less. A five-year lease of a low-value printer therefore remains eligible. The trap is importing the 12-month short-term test into the low-value assessment.
Confirm the low-value exemption is not restricted by lease term, unlike the short-term exemption (IFRS 16.B5).
Official guidance: IFRS issued standards
Does the lease contain a purchase option that makes the arrangement effectively an asset purchase?
The low-value assessment looks at the underlying asset's value when new (IFRS 16.B4). Where a lease includes a purchase option that is reasonably certain to be exercised, the lessee is in substance acquiring the asset, and the entity should confirm whether the item is genuinely of low value when new and whether an owned-asset model is more appropriate. The trap is applying the exemption to what is really a financed purchase of a higher-value asset paid in instalments.
Reassess the exemption; a purchase option indicating asset acquisition points to full recognition rather than the low-value exemption (IFRS 16.B4; IFRS 16.B7).
Official guidance: IFRS issued standards
Are subleases of low-value assets excluded from the lessee exemption?
IFRS 16.B7 provides that a head lease does not qualify as a lease of a low-value asset if the lessee subleases, or expects to sublease, the underlying asset. The intermediate lessor then classifies and accounts for the sublease under the lessor requirements by reference to the right-of-use asset arising from the head lease (IFRS 16.B58). The trap is keeping the head lease off balance sheet as low value when a sublease is in place or planned.
Apply intermediate lessor sublease accounting rather than the lessee low-value exemption because the asset is subleased (IFRS 16.B7; IFRS 16.B58).
Official guidance: IFRS issued standards
Are similar low-value leases treated consistently across the entity?
The low-value election is made on a lease-by-lease basis (IFRS 16.8), unlike the short-term exemption, which is elected by class of underlying asset. Even so, applying the exemption consistently to similar assets - tablets, small office equipment, furniture - under a documented policy supports comparability and reduces control risk. The trap is ad hoc application that leaves similar leases treated differently across periods or business units.
Align the application of the low-value exemption across similar asset classes under a documented policy (IFRS 16.8).
Official guidance: IFRS issued standards
Have variable lease payments not tied to an index or rate been identified for separate expense treatment?
For a low-value lease under the exemption, IFRS 16.6 requires the lessee to recognise the lease payments as an expense on a straight-line or other systematic basis. Variable payments that depend on usage or performance, and so are not tied to an index or rate, are recognised in the period the obligating event occurs rather than smoothed over the term. The trap is straight-lining usage-based charges that should be expensed as incurred.
Identify variable payments not tied to an index or rate and recognise them as expense when incurred (IFRS 16.6).
Official guidance: IFRS issued standards
Are lease payments for exempt low-value leases expensed on a systematic basis?
IFRS 16.6 requires payments for exempt low-value leases to be recognised as an expense on a straight-line basis over the lease term, unless another systematic basis is more representative of the pattern of benefit. No right-of-use asset or lease liability is recognised. The trap is capitalising the exempt lease or recognising the expense on a cash basis that does not reflect the lease term.
Recognise exempt lease payments as expense on a systematic basis rather than capitalising them (IFRS 16.6).
Official guidance: IFRS issued standards
Are commitments for low-value leases disclosed when required?
IFRS 16.53(d) requires the lessee to disclose the expense relating to leases of low-value assets, excluding short-term leases of low-value assets already captured in the short-term lease expense (IFRS 16.53(c)). Provide any further information needed for users to assess the effect of leases not recognised on the balance sheet, consistent with the disclosure objective (IFRS 16.51). The trap is omitting the low-value expense line or combining it indistinguishably with other operating costs.
Prepare the low-value lease expense and related disclosures for leases kept off the balance sheet (IFRS 16.53(d)).
Official guidance: IFRS issued standards
Is the low-value exemption policy disclosed in the accounting policies note?
Disclose the election to apply the low-value exemption and the basis on which the entity determines whether an asset is of low value, as material accounting policy information (IAS 1.117), supporting the IFRS 16 disclosure objective (IFRS 16.51). The trap is electing the exemption in practice without describing the policy, leaving users unable to understand why qualifying leases are kept off the balance sheet.
The low-value exemption assessment, expense recognition, and disclosures are complete (IFRS 16.53; IFRS 16.51). Add the low-value exemption policy and the basis for identifying low-value assets to the accounting policies note (IAS 1.117).
Official guidance: IFRS issued standards
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