IFRS 16: Impact on Financial Reporting and Internal Processes

The implementation of IFRS 16 represents an important step toward enhancing financial reporting within the corporate sector. Alignment with internationally accepted practices enables companies to present more consistent, transparent and comparable financial information, strengthening the confidence of investors, lenders and business partners.

This alignment also provides a stronger foundation for growth, improved corporate governance and easier access to international markets and capital. At the same time, the higher-quality and more accurate data that result from this application contribute to more efficient tax processes and greater regulatory compliance.

What Changes with the Application of IFRS 16?

IFRS 16 introduces a fundamental change in the accounting treatment of leases, requiring lessees to recognise most leases directly on the balance sheet as a right-of-use asset and a corresponding lease liability. This replaces the previous model of classifying leases as operating or finance leases for lessees, introducing a single approach that provides greater transparency and more consistent presentation of long-term obligations and the use of underlying assets. This results in:

• Increase in total assets
• Increase in total liabilities
• Higher EBITDA (the lease expense is replaced by depreciation and interest)
• Changes in key financial indicators

From Identifying a Lease to Initial Measurement

To classify a contract as a lease, two key criteria must be met:

1. The contract contains an identified asset

The asset must be clearly specified, and the supplier must not have a practical ability to substitute it without significant consequences.

2. The customer has the right to control the use of the asset

This includes two essential rights:

• the right to direct the use of the asset, and
• the right to obtain the economic benefits from its use.

If both conditions are met, the contract is treated as a lease.

How Does the Lessee Recognise the Lease?

Right-of-Use Asset

The initial measurement of the RoU asset includes:

• the amount of the initially measured lease liability
• any payments made before or at the commencement date, minus any lease incentives
• initial direct costs related to entering the contract
• estimated costs for dismantling, removing or restoring the asset to its original condition

Lease Liability

The lease liability represents the present value of future lease payments over the lease term, discounted using the lessee’s incremental borrowing rate.

Impact on the Financial Statements

What Should Companies Do?

With the application of IFRS 16, companies need to establish clear processes for identifying lease contracts, measuring and documenting lease obligations, and ensuring ongoing monitoring. The impact on the financial reporting, financial ratios and internal processes is significant and requires coordination between finance, legal and IT teams.

Contact us for expert support, analysis and practical solutions that will ensure a secure, accurate and fully compliant implementation of IFRS 16.

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