Michał DREAS
Junior Audit Manager at RSM Poland

On 13 January 2016, the International Accounting Standards Board (IASB) issued the new International Financial Reporting Standard No. 16 (IFRS) – "Leases", which supersedes IAS No. 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. A company may choose to apply IFRS 16 before that date but only if it also applies IFRS 15 "Revenue from Contracts with Customers".

The need for new regulations on recognising and evaluating lease contracts was prompted on the one hand by the widespread use of this form of financing and on the other hand by wide interpretation options and the low tendency of companies to recognize liabilities in this scope. Often, the unclear distinction between two types of leases confused investors in comparing financial statements.

The IFRS Council decided to adopt a single model, which brings all lease contracts (except for short-term contracts and low-value assets) into the balance sheet in a manner similar to the previously applied principles of recognising financial leasing.

Under the new approach, the lessee acquires the right to use the asset which is the subject of the contract and agrees to pay fees for this right. This concept is called the "right-of-use model." In its balance sheet, the lessee shall enter the right to use the asset into reported assets, whereas lease payments shall be considered as a liability. Therefore, the profit or loss for the period shall include the costs of depreciation of the right and interest expense.

The lessee shall demonstrate its right to use the asset and not just the fact of owning the asset.

Valuation of assets and liabilities of the lessee:


Initial valuation

Valuation at the reporting day

Right to use the asset

The sum of the initial liability valuation and initial direct costs

Cost less depreciation or according to revalued amount (based on IAS 16, if a given class of own assets is also used for the revaluation model)


The amortization over the lease term or for the useful life (whichever period is shorter) according to IAS 38.


The test for the impairment of assets, according to IAS 36

Commitment to pay the lease payments

The current value of the lease payments discounted using the marginal lending rate or the interest rate charged by the lessor, if it can be easily determined.

Reducing the financial liability by the repayment of principal instalments


Interest costs