What is IFRS 16 and how does it impact lease accounting?

What is IFRS 16 and how does it impact lease accounting?

IFRS 16 is an international accounting standard that changes how leases are reported on financial statements. It requires lessees to recognize most leases on their balance sheets, which impacts assets and liabilities.

What are the main changes introduced by IFRS 16?

The main changes include the requirement for lessees to recognize a right-of-use asset and a lease liability for most leases, eliminating the distinction between operating and finance leases for lessees.

How does IFRS 16 affect financial ratios?

IFRS 16 can affect financial ratios such as debt-to-equity and return on assets, as it increases reported liabilities and assets on the balance sheet.

Are there any exemptions under IFRS 16?

Yes, IFRS 16 provides exemptions for short-term leases and leases of low-value assets, allowing lessees to avoid recognizing these on the balance sheet.