Key Takeaways
- IFRS 16.47-60 provides a comprehensive checklist of required lessee disclosures
- Disclosures divide into quantitative (numerical) and qualitative (descriptive) requirements
- A maturity analysis showing undiscounted future payments by time band is mandatory
- Presentation requirements cover balance sheet, income statement, and cash flow statement
- Lease liabilities must be presented separately or disclosed within other line items
Overview of IFRS 16 Disclosures
IFRS 16 requires extensive disclosures that go beyond the basic accounting mechanics. The disclosure objective is to provide financial statement users with sufficient information to assess the effect of leases on the lessee's financial position, financial performance, and cash flows.
Disclosures can be divided into two main categories:
- Quantitative disclosures - numerical information including movement schedules, annual totals, and forecasted amounts
- Qualitative disclosures - descriptive notes explaining accounting policies and providing context for the figures
Disclosure vs Presentation
Presentation refers to how amounts are shown in the primary financial statements (balance sheet, income statement, cash flow statement). Disclosures provide additional detail in the notes - they represent the most detailed view of lease accounting information.
Quantitative Disclosures
IFRS 16.53 requires lessees to disclose the following amounts for the reporting period:
Income Statement Items
| Disclosure Item | Reference | Description |
|---|---|---|
| Depreciation charge | IFRS 16.53(a) | Depreciation of right-of-use assets by class of underlying asset |
| Interest expense | IFRS 16.53(b) | Interest on lease liabilities |
| Short-term lease expense | IFRS 16.53(c) | Expense for leases with terms of 12 months or less (if exemption applied) |
| Low-value lease expense | IFRS 16.53(d) | Expense for leases of low-value assets (if exemption applied) |
| Variable lease payments | IFRS 16.53(e) | Variable payments not included in lease liability measurement |
| Sublease income | IFRS 16.53(f) | Income from subleasing right-of-use assets |
| Gains/losses on sale and leaseback | IFRS 16.53(i) | Any gains or losses from sale and leaseback transactions |
Cash Flow Information
| Disclosure Item | Reference |
|---|---|
| Total cash outflow for leases | IFRS 16.53(g) |
| Additions to right-of-use assets | IFRS 16.53(h) |
Practical Tip
The total cash outflow for leases includes principal and interest payments on lease liabilities, payments for short-term leases, payments for low-value leases, and variable lease payments. This gives users a complete picture of the cash impact of lease arrangements.
Maturity Analysis
IFRS 16.58 requires a maturity analysis of lease liabilities showing the undiscounted contractual cash flows. This helps users understand the timing and uncertainty of future cash outflows.
Required Time Bands
The maturity analysis should show undiscounted future lease payments in appropriate time bands. Common practice includes:
- Less than 1 year
- 1-2 years
- 2-3 years
- 3-4 years
- 4-5 years
- More than 5 years
Example Maturity Analysis
| Period | Undiscounted Payments (£000) |
|---|---|
| Less than 1 year | 2,450 |
| 1-2 years | 2,150 |
| 2-3 years | 1,890 |
| 3-4 years | 1,650 |
| 4-5 years | 1,420 |
| More than 5 years | 4,280 |
| Total undiscounted payments | 13,840 |
| Less: Finance charges | (2,340) |
| Total lease liabilities | 11,500 |
Reconciliation required: The total undiscounted payments in the maturity analysis should reconcile to the total lease liability on the balance sheet when the effect of discounting is removed.
Right-of-Use Asset Disclosures
IFRS 16.54 requires disclosure of the carrying amount of right-of-use assets at the end of the reporting period, broken down by class of underlying asset:
Example ROU Asset Breakdown
| Asset Class | Carrying Amount (£000) |
|---|---|
| Property | 8,250 |
| Vehicles | 1,420 |
| Equipment | 890 |
| IT equipment | 340 |
| Total ROU assets | 10,900 |
If right-of-use assets are not presented separately in the balance sheet, entities must disclose which line items include them and their amounts.
Qualitative Disclosures
IFRS 16.59 requires qualitative information to help users assess the nature of leasing activities and associated risks.
Required Qualitative Information
Significant Judgements
Entities must also disclose significant judgements made in applying IFRS 16, including:
- Determining the lease term when the contract contains extension or termination options
- Determining the discount rate (particularly the incremental borrowing rate)
- Assessing whether purchase options are reasonably certain to be exercised
Audit Focus Area
Auditors frequently scrutinise lease term judgements and IBR calculations. Document the rationale for key assumptions, including how extension/termination options were assessed and how discount rates were determined for different lease portfolios.
Presentation Requirements
IFRS 16 specifies how lease items should be presented in the primary financial statements.
Balance Sheet
| Item | Presentation Options |
|---|---|
| Right-of-use assets | Present separately OR within the line item that would be used if the assets were owned (e.g., property, plant and equipment) with disclosure |
| Lease liabilities | Present separately from other liabilities OR disclose which line items include them |
Income Statement
- Depreciation - included within depreciation expense (or operating costs)
- Interest expense - presented within finance costs, separately from depreciation
Cash Flow Statement
| Payment Type | Classification |
|---|---|
| Principal portion of lease payments | Financing activities |
| Interest portion of lease payments | Operating or financing activities (consistent with other interest) |
| Short-term lease payments | Operating activities |
| Low-value lease payments | Operating activities |
| Variable lease payments | Operating activities |
Complete Disclosure Checklist
Use this checklist to ensure all required IFRS 16 lessee disclosures are addressed:
Income Statement Amounts (IFRS 16.53)
- Depreciation by asset class
- Interest on lease liabilities
- Short-term lease expense
- Low-value asset lease expense
- Variable lease payments expense
- Sublease income
- Sale and leaseback gains/losses
Balance Sheet Information (IFRS 16.54-56)
- ROU asset carrying amount by class
- Additions to ROU assets
- Lease liability carrying amount (current and non-current)
- Line items containing ROU assets/lease liabilities if not separate
Cash Flow Information (IFRS 16.53)
- Total cash outflow for leases
- Breakdown by principal/interest if helpful
Maturity Analysis (IFRS 16.58)
- Undiscounted payments by time band
- Reconciliation to lease liability balance
Qualitative Disclosures (IFRS 16.59)
- Nature of leasing activities
- Potential future cash outflows not in measurement
- Restrictions and covenants
- Sale and leaseback information
- Significant judgements and assumptions
This article is provided for general informational purposes only and does not constitute accounting, legal or professional advice.