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International Financial Reporting Standards

IFRS 16:Exemptions

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Sue Lloyd, Board Member, IASB

Kathryn Donkersley, Technical Manager, IASB

2 Session overview

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Accounting for exempt leases

1

Short-term

leases 2

Leases of

low-value assets

3

• Overview of requirements

• Q&A with Sue Lloyd

− How the Board got there;

− Leases in scope; and

− Implementation questions.

3 Lessee accounting for exempt leases

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

• Recognise P&L expense over the life of a lease

− Typically straight-line

− Similar to IAS 17 operating leases

− No balance sheet assets and liabilities (other than prepaid and

accrued lease payments)

• Disclose expense relating to each exemption in the

notes to the financial statements

• Exemptions are optional

4

Short term lease exemption: Requirements

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Can be applied to leases with a lease

term of 12 months or less

Lease term as defined

in IFRS 16—ie need

to make reasonably

certain assessment

Cannot be applied to leases

containing a purchase option

Apply by class of underlying asset

5

Short term lease exemption: Q&A with Board Member Sue Lloyd

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

How did the Board decide on the short term lease exemption requirements? What kinds of leases did they have in mind?

1

What happens if a lease to which the exemption is applied is subsequently extended? What if that happens multiple times?

3

Did the Board have any concerns about the possibility of structuring contracts to qualify for the exemption?

2

6

Leases of low-value assets exemption: Requirements

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Can be applied to leases of

underlying assets that are of low

value

Apply the exemption on a lease by lease

basis

Low value assessment applies:

• to the value of the underlying asset when new;

• on an absolute basis; and

• irrespective of materiality.

7

Leases of low-value assets exemption: Q&A with Board Member Sue Lloyd

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Can you expand on exactly what “low-value” means? What kinds of assets did the Board have in mind?

1

Is there a particular threshold that defines a “low-value” asset? 2

How does the exemption interact with the concept of materiality? 3

8

Leases of low-value assets exemption: Requirements

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Exemption cannot be applied….

…or if the lessee

cannot benefit from

using the underlying

asset on its own or

with other readily

available resources

…if the underlying

asset is highly

dependent on or

highly interrelated

with other assets …if the nature of the

underlying asset,

when new, is not

typically low value

…to the

head lease in a

sublease

arrangement

9

Leases of low-value assets exemption: Q&A with Board Member Sue Lloyd

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Can you expand on exactly what “low-value” means? What kinds of assets did the Board have in mind?

1

Is there a particular threshold that defines a “low-value” asset? 2

How does the exemption interact with the concept of materiality? 3

Does the exemption apply to master lease agreements? 4

• Leases project page

http://www.ifrs.org/Current-Projects/IASB-Projects/Leases

• Leases implementation page

http://www.ifrs.org/Current-Projects/IASB-Projects/leases-

implementation/Pages/IFRS-16-Leases-Implementation.aspx

Further information

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

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