Lease Judgement Documentation Checklist

Document and support key accounting judgements under IFRS 16. Essential for audit readiness and consistent policy application.

Why Document Judgements?

IFRS 16 requires significant judgement in areas like lease term determination, discount rate selection, and identifying whether a contract contains a lease. Documenting your judgements ensures consistency, supports audit requirements, and demonstrates compliance with IAS 1.122-125 disclosure requirements for significant accounting judgements.

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1

Lease Identification (IFRS 16.9-11)

Determine whether a contract is, or contains, a lease by assessing whether the customer has the right to control the use of an identified asset.

Identified Asset Assessment

Documented whether the asset is explicitly or implicitly specified in the contract IFRS 16.B13
Assessed whether the supplier has substantive substitution rights IFRS 16.B14
Determined whether portions of assets represent separate identified assets IFRS 16.B20

Right to Control Assessment

Assessed whether customer obtains substantially all economic benefits IFRS 16.B21
Determined who has the right to direct the use of the asset IFRS 16.B25
Documented protective rights vs. substantive decision-making rights IFRS 16.B30
Audit Tip

Maintain a contract review log that documents your analysis for each significant contract, including the specific facts and circumstances that support your conclusion.

2

Lease Term Determination (IFRS 16.18-21)

The lease term includes the non-cancellable period plus periods covered by extension options reasonably certain to be exercised and termination options reasonably certain not to be exercised.

Non-Cancellable Period

Identified the contractual non-cancellable period IFRS 16.18
Considered enforceability under local laws and contract terms IFRS 16.B34

Extension Options Assessment

Listed all extension options available in the contract IFRS 16.19
Assessed economic incentive to exercise each option (favourable terms, leasehold improvements, location significance) IFRS 16.B37
Considered entity-specific factors and past practice IFRS 16.B38
Documented conclusion and supporting rationale for "reasonably certain" threshold IFRS 16.B37-40

Termination Options Assessment

Identified all termination options (lessee and lessor) IFRS 16.19
Assessed economic disincentives to terminate (penalties, relocation costs, business disruption) IFRS 16.B37
Documented conclusion for termination options reasonably certain not to be exercised IFRS 16.B37-40
Audit Tip

For portfolios of similar leases, document your policy for lease term determination and the key factors considered. Reassess when significant events or changes occur.

3

Discount Rate Selection (IFRS 16.26)

Use the interest rate implicit in the lease if readily determinable. Otherwise, use the lessee's incremental borrowing rate (IBR).

Implicit Rate Assessment

Assessed whether implicit rate is readily determinable from lessor information IFRS 16.26
Documented reasons if implicit rate cannot be determined IFRS 16.26

Incremental Borrowing Rate

Identified appropriate reference rate (risk-free rate, government bonds, observable borrowings) IFRS 16.Appendix A
Applied credit risk adjustment specific to the entity IFRS 16.Appendix A
Adjusted for lease term (term structure of interest rates) IFRS 16.Appendix A
Considered security/collateral nature of the underlying asset IFRS 16.Appendix A
Adjusted for economic environment (currency, jurisdiction) IFRS 16.Appendix A
Documented the methodology and data sources used IFRS 16.59(b)
Audit Tip

Establish a documented IBR policy including the methodology, data sources, and update frequency. Consider engaging treasury or external advisors for complex rate determinations.

4

Lease Payment Determination (IFRS 16.27)

Identify all payments to be included in the lease liability measurement, including fixed payments, variable payments based on an index or rate, and expected payments under residual value guarantees.

Fixed Payments

Identified all fixed lease payments over the lease term IFRS 16.27(a)
Assessed in-substance fixed payments (appear variable but are unavoidable) IFRS 16.B42
Deducted any lease incentives receivable IFRS 16.27(a)

Variable Payments

Identified variable payments linked to an index or rate (CPI, market rent) IFRS 16.27(b)
Documented treatment of variable payments linked to sales/usage (expensed as incurred) IFRS 16.38(b)

Other Payments

Assessed residual value guarantees and amounts expected to be payable IFRS 16.27(c)
Included purchase option exercise price if reasonably certain to exercise IFRS 16.27(d)
Included termination penalties if lease term reflects termination IFRS 16.27(e)
Audit Tip

For residual value guarantees, document the expected residual value compared to the guaranteed amount, including supporting evidence for your estimate.

5

Component Separation (IFRS 16.12-17)

Separate lease components from non-lease components (services) unless the practical expedient is elected to account for them together.

Component Identification

Identified separate lease components in the contract IFRS 16.12
Identified non-lease components (maintenance, cleaning, utilities) IFRS 16.12
Documented whether practical expedient is elected (by class of asset) IFRS 16.15

Allocation of Consideration

Allocated consideration based on relative stand-alone prices IFRS 16.13
If stand-alone prices not observable, documented estimation approach IFRS 16.14
Audit Tip

Document your policy election regarding the practical expedient for each class of underlying asset, and ensure consistent application across similar contracts.

6

Right-of-Use Asset Measurement (IFRS 16.23-28)

The ROU asset is measured at cost, comprising the lease liability, prepayments, initial direct costs, and estimated restoration costs.

Initial Measurement

Included initial direct costs that are incremental to obtaining the lease IFRS 16.24(c)
Assessed and included restoration/dismantling obligation estimates IFRS 16.24(d)
Included any lease payments made before commencement date IFRS 16.24(b)

Subsequent Measurement

Determined depreciation period (shorter of useful life or lease term) IFRS 16.32
Selected and documented depreciation method (usually straight-line) IFRS 16.31
Assessed impairment indicators per IAS 36 IFRS 16.33
Audit Tip

For restoration obligations, obtain independent estimates where material. Document the assumptions used and ensure consistency with other provisions recognized.

7

Recognition Exemptions (IFRS 16.5-8)

IFRS 16 permits optional exemptions for short-term leases and leases of low-value assets.

Short-Term Lease Exemption

Documented policy election for short-term lease exemption (by class of asset) IFRS 16.5
Verified lease term is 12 months or less at commencement (no purchase option) IFRS 16.Appendix A
Considered extension options in determining lease term IFRS 16.B35

Low-Value Asset Exemption

Documented policy for low-value threshold (typically USD 5,000 when new) IFRS 16.B3-8
Assessed value when asset is new (not current condition) IFRS 16.B5
Confirmed asset is not highly dependent on or integrated with other assets IFRS 16.B6
Audit Tip

Maintain an inventory of leases accounted for under exemptions to support disclosure requirements and ensure consistent application of your policy.

Guidance, Insights & Resources

IFRS 16 Complete Guide

Comprehensive guidance covering lease term, measurement, and all key topics

Discount Rate Guide

How to determine the appropriate discount rate for your leases

Disclosure Checklist

Comprehensive checklist for IFRS 16 disclosure requirements

Streamline Your Lease Accounting

Rubli automatically documents key judgements and generates audit-ready reports with full traceability.