IFRS 16 Compliance Guide — Lease Accounting Explained
IFRS 16 Demystified. From right-of-use assets to lease liability calculations — Payline keeps your lease accounting compliant and audit-ready.
IFRS 16 Compliance — The International Lease Accounting Standard
IFRS 16 'Leases' is the International Financial Reporting Standard that replaced IAS 17 for accounting periods beginning on or after 1 January 2019. It fundamentally changed lessee accounting by eliminating the distinction between operating and finance leases — all leases (except short-term and low-value asset leases) must now be recognised on the balance sheet as a right-of-use (ROU) asset and a corresponding lease liability. This impacts financial ratios, debt covenants, and EBITDA calculations across every sector — from airlines and retailers to professional services and property companies. Payline's specialist accounting team provides end-to-end IFRS 16 implementation and ongoing compliance support.
- Right-of-Use Asset Calculation: Correct measurement at initial recognition and subsequent amortisation
- Lease Liability Schedules: Complete amortisation tables with interest unwinding
- Practical Expedients: Short-term lease and low-value asset elections documented correctly
- IFRS 16 Disclosures: All required quantitative and qualitative note disclosures
- Private Company Compliance: Applying IFRS 16 to non-public entities and SMEs
- Airlines & Property: Industry-specific guidance for variable lease payments and subleases
How IFRS 16 Changed Lease Accounting
Before IFRS 16, operating leases were off-balance-sheet — the rent expense appeared on the P&L but no asset or liability was recognised. IFRS 16 brought all leases onto the balance sheet. As a lessee, you must now recognise: (a) a right-of-use (ROU) asset representing your right to use the underlying asset, and (b) a lease liability representing your obligation to make future lease payments, discounted at your incremental borrowing rate. The ROU asset is depreciated over the shorter of the lease term and the asset's useful life, while the lease liability is unwound using the effective interest method. This approach significantly impacts EBITDA (which improves, as rent moves to depreciation + interest), net debt ratios, and return on assets. Payline's UK accounting team specialises in IFRS 16 for UK and international entities.
IFRS 16 for Airlines, Property Companies & Private Companies
IFRS 16 has a particularly significant impact on airlines (aircraft leases), retailers (store leases), and property companies (ground leases, subleases). Airlines must capitalise all aircraft operating leases, dramatically increasing both their asset base and debt on the balance sheet. Variable lease payments linked to usage (e.g., per-flight charges) are excluded from the lease liability and expensed as incurred. For private companies that report under IFRS, the same rules apply — though many transition to IFRS for SMEs, which has a simplified lease treatment closer to the old IAS 17 approach. Contact Payline to assess your specific lease portfolio and disclosure obligations.
Your Journey With Payline
We partner with you at every stage of your growth journey
IDENTIFY
Lease Portfolio Assessment
We identify all in-scope leases across your organisation and gather the data needed for initial recognition.
Complete lease inventory review across all property, plant, and equipment
Assessment of lease vs. service contract distinction under IFRS 16
Identification of short-term and low-value asset practical expedient elections
Determination of lease term including renewal and termination options
Identification of lease components vs. non-lease components
Incremental borrowing rate (IBR) assessment for discount rate calculation
Click the stages above to explore how we support your business journey
Frequently Asked Questions
IFRS 16 'Leases' is the International Financial Reporting Standard issued by the IASB that requires lessees to recognise virtually all leases on their balance sheet as a right-of-use (ROU) asset and a lease liability. It replaced IAS 17 for annual periods beginning on or after 1 January 2019.
IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application was permitted for entities that also apply IFRS 15 Revenue from Contracts with Customers. Entities must disclose that they are applying IFRS 16 early if they choose early adoption.
IFRS 16 applies to all entities that prepare financial statements in accordance with IFRS — both lessees and lessors. The standard applies to virtually all leases, except short-term leases (12 months or less at commencement) and leases of low-value assets (generally assets with a new value of approximately USD 5,000 or below).
Yes. IFRS 16 applies to all entities that report under IFRS, including private companies. If a private company reports under IFRS for SMEs, a simplified lease standard applies (Section 20), which is closer to the old IAS 17 operating lease model and does not require full on-balance-sheet recognition for all leases.
Airlines are among the most significantly impacted by IFRS 16 because aircraft operating leases — previously off-balance-sheet — must now be capitalised. This substantially increases total assets and total debt on the balance sheet, improves EBITDA (since aircraft rental expense moves to depreciation and interest), and affects key metrics like leverage ratios and return on assets used by investors and lenders.
A right-of-use (ROU) asset represents the lessee's right to use an underlying asset for the lease term. At initial recognition, it is measured at the amount of the lease liability, plus any initial direct costs, less any lease incentives received, plus any prepaid lease payments. The ROU asset is subsequently depreciated over the shorter of the lease term and the asset's useful life.