Key Takeaways
- IFRS 16.47-60 covers lessee presentation and disclosure requirements, with the core disclosure requirements in IFRS 16.51-60
- 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 current-period amounts, movement schedules, and information about potential future cash outflows not reflected in lease liabilities
- 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.
Single Note Requirement (IFRS 16.52)
IFRS 16 requires lease disclosures to be presented in a single note or a separate section of the financial statements. If information is disclosed elsewhere (e.g. interest expense within a general finance costs note), cross-referencing is permitted instead of duplication.
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 the exemption is applied, disclose that fact (IFRS 16.60) |
| Low-value lease expense | IFRS 16.53(d) | Expense for leases of low-value assets. If the exemption is applied, disclose that fact (IFRS 16.60) |
| 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 |
Other Quantitative Disclosures
| Disclosure Item | Reference | Description |
|---|---|---|
| Total cash outflow for leases | IFRS 16.53(g) | Aggregate cash paid for leases during the period |
| Additions to right-of-use assets | IFRS 16.53(h) | New ROU assets recognised during the period (this is a non-cash disclosure, not a cash flow line item) |
| Carrying amount of ROU assets | IFRS 16.53(j) | End-of-period carrying amount by class of underlying asset |
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.
Time Bands
IFRS 16.58 requires the maturity analysis to apply IFRS 7 paragraph 39 and B11 principles. The standard does not prescribe specific time bands, but 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 |
Useful consistency check: The total undiscounted payments less the finance charges should reconcile to the lease liability on the balance sheet. While not an explicit IFRS 16 requirement, this reconciliation is widely expected by auditors and financial statement users.
Right-of-Use Asset Disclosures
IFRS 16.53(j) 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. IFRS 16.54 requires this to be presented in tabular format:
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.
Qualitative Information
IFRS 16.59 states that the following may be needed to meet the disclosure objective. These are examples, not an exhaustive list:
Significant Judgements
IAS 1 requires disclosure of significant judgements and estimation uncertainty, which in the context of IFRS 16 often includes:
- 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 |
Disclosure Checklist
Use this checklist as a starting point for IFRS 16 lessee disclosures. Additional or conditional disclosures may apply depending on your circumstances (e.g. IFRS 16.55-57 for entities with short-term lease portfolios, investment property ROU assets, or revalued ROU assets).
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
- ROU asset carrying amount by class (IFRS 16.53(j), tabular format per 16.54)
- Additions to ROU assets (IFRS 16.53(h))
- Lease liability carrying amount (current/non-current split per IAS 1)
- Line items containing ROU assets/lease liabilities if not presented separately (IFRS 16.47)
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 (best practice, widely expected)
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 (per IAS 1, in the context of IFRS 16)
This article is provided for general informational purposes only and does not constitute accounting, legal or professional advice.