IFRS 16 "Leases"

IFRS 16 "Leases" is an international financial reporting standard that provides guidance on lease accounting. It was issued by the International Accounting Standards Board (IASB) to replace the previous leases standard, IAS 17. IFRS 16 introduces significant changes in accounting for leases, particularly for lessees. Here are the key aspects of IFRS 16:

1. Single Lessee Accounting Model: Under IFRS 16, lessees are required to recognize almost all leases on their balance sheets, eliminating the distinction between operating and finance leases. Lessees must recognize a right-of-use asset and a lease liability.

2. Right-of-Use Asset: The right-of-use asset represents a lessee's right to use an underlying asset for the lease term. The lessee measures this asset based on the lease liability, adjusted for lease payments made at or before the commencement date, lease incentives received, and initial direct costs incurred by the lessee.

3. Lease Liability: The lease liability is measured at the present value of the lease payments not yet paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate.

4. Recognition Exemptions: Lessees may elect not to recognize right-of-use assets and liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets.

5. Lessor Accounting: The accounting treatment for lessors remains largely unchanged from IAS 17. Lessors continue to classify leases as either operating or finance leases and account for them differently.

6. Subsequent Measurement: The lessee generally measures right-of-use assets similarly to other non-financial assets (such as property, plant, and equipment) and lease liabilities similarly to other financial liabilities.

7. Expense Recognition: For lease liabilities, the lessee recognizes interest expense over the lease term and the depreciation of the right-of-use asset.

8. Impact on Financial Statements: The introduction of IFRS 16 significantly impacts the lessee's financial statements, including an increase in assets and liabilities and changes in the timing of expense recognition.

9. Disclosure Requirements: IFRS 16 requires detailed disclosures by lessees and lessors to enable users of financial statements to assess the effect of leases on the financial position, financial performance, and cash flows of the entity.

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