Complete lease populations, defensible discount rates and the audit file your reviewer asks for.
IFRS 16 lease compliance services identify every contract that contains a lease, measure the right-of-use asset and lease liability, and produce the register, judgements and disclosures an auditor tests. IFRS 16 requires a lessee to recognise assets and liabilities arising from a lease on the balance sheet.
IFRS 16 has been in force since 1 January 2019, and it superseded IAS 17 along with IFRIC 4, SIC-15 and SIC-27. Three amendments have followed: Covid-19 Rent Concessions in May 2020, Interest Rate Benchmark Reform Phase 2 in August 2020, and Lease Liability in a Sale and Leaseback in September 2022, effective for periods beginning on or after 1 January 2024.
So the standard is settled, unlike several of the standards taking effect in 2026. What is not settled here is the data underneath it.
Seven reporting cycles have passed since transition. Property portfolios changed, contracts were renegotiated, and in most groups the register was built once and maintained by whoever had time.
Table 1. What brings a contract into scope.
| Test | What to evidence | Where it is missed |
|---|---|---|
| Identified asset | A specific asset, with no substantive substitution right held by the supplier | Supplier substitution rights assumed rather than checked |
| Right to substantially all economic benefits | Who receives the output or benefit across the period of use | Shared-use arrangements never assessed |
| Right to direct the use | Who decides how and for what purpose the asset is used | Service contracts with dedicated equipment inside them |
That third row is where embedded leases hide. An outsourced IT contract with dedicated servers, a logistics agreement with named vehicles, a manufacturing contract with a dedicated line. None of them looks like a lease on the invoice.
Table 2. Rate selection under paragraph 26.
| Rate | When it applies | What the file needs |
|---|---|---|
| Interest rate implicit in the lease | First choice, where it can be readily determined | The lessor cash flows and residual value that produce it. Rarely available to a lessee. |
| Incremental borrowing rate | Where the implicit rate cannot be readily determined | The rate you would pay to borrow over a similar term, with similar security, for funds to obtain an asset of similar value in a similar economic environment. Built from components, dated, and refreshed. |
The IFRS Interpretations Committee addressed the incremental borrowing rate in a September 2019 agenda decision. The rate is asset-specific and term-specific, so one group rate applied to every lease is the position most often challenged.
Table 3. What you can elect not to recognise.
| Election | Scope | Documentation needed |
|---|---|---|
| Short-term lease exemption | Leases of 12 months or less at commencement, with no purchase option | Applied by class of underlying asset. The election and the class must be recorded. |
| Low-value asset exemption | Leases where the underlying asset is of low value when new | Applied lease by lease. Your threshold and its basis should be written down. |
| Non-lease component expedient | Election not to separate lease and non-lease components | Applied by class. Increases the liability, so the trade-off should be stated. |
These are elections, not defaults. An auditor will ask which you took, at what level, and where that decision is recorded.
Table 4. Lessee and lessor treatment compared.
| Lessee | Lessor | |
|---|---|---|
| Classification | Single model. No operating and finance distinction. | Retained. Leases are still classified as operating or finance, and the classification test is essentially unchanged from IAS 17. |
| Balance sheet | Right-of-use asset and lease liability recognised for all leases except the exemptions | Substantially as before |
| Practical effect | Substantial change | Largely business as usual, with added disclosure and complexity in subleases |
Worth saying out loud, because the assumption usually runs the other way. If you are a lessor, IFRS 16 mostly left you where IAS 17 did. Subleases are the exception, because you assess the sublease against the right-of-use asset rather than the underlying asset.
What teams need: lease term conclusions revisited when circumstances change.
How Prima solves it: we test whether exercise is reasonably certain against current facts, not the facts at transition, then remeasure where the conclusion changes. The mechanics of accounting for a lease modification are set out separately.
What teams need: a completeness test that does not rely on remembering.
How Prima solves it: we work from payables data and contract registers rather than the existing lease list, so anything already recorded as rent or hire surfaces.
What teams need: a register with controls around it that survives that person leaving.
How Prima solves it: we rebuild the register with inputs separated from calculations, and design the controls over additions and modifications.
What teams need: a rate that reflects the term, the security and the economic environment of each lease.
How Prima solves it: we build the incremental borrowing rate from sourced components and set a refresh policy.
What teams need: to know where the ratios sit now that liabilities are on balance sheet.
How Prima solves it: we quantify the effect on EBITDA, net debt and gearing, then prepare the position for lender conversations.
That last one surfaces late, usually when a lender runs their own numbers. Get there before the lender does and it stays a conversation.
What teams need: service contracts screened for embedded leases.
How Prima solves it: we apply the identified-asset and direction-of-use tests to service agreements, not just to anything labelled a lease.
Three tracks. Transition and remediation, ongoing lease accounting, and audit support.
| Service | What it means for your reporting |
|---|---|
| Lease population completeness review | Every contract containing a lease identified from payments and contract data, so the register reflects the business rather than what someone remembered. |
| Embedded lease screening | Service, outsourcing and logistics contracts tested against the identified-asset and direction-of-use criteria. |
| Discount rate build | Incremental borrowing rates constructed from sourced components, differentiated by term and asset class, with a refresh policy attached. |
| Lease register build | One structured record per lease covering term, options, payments and modifications, with inputs separated from calculations. |
| Right-of-use and liability measurement | Initial and subsequent measurement calculated and reconciled, with the maturity analysis prepared for disclosure. |
| Service | What it means for your reporting |
|---|---|
| Modification and reassessment support | Rent changes, option exercises and scope changes assessed and remeasured as they happen rather than at year end. Groups reporting under both frameworks also need the points where IFRS 16 and ASC 842 diverge. |
| Lease portfolio and covenant analysis | The effect of the portfolio on net debt and gearing quantified, so lender conversations start from your numbers. |
| Renegotiation and early surrender analysis | The accounting outcome of a proposed lease change modelled before you sign it. |
| Controls over the lease register | Additions, modifications and terminations captured through a designed process rather than by email. |
| Service | What it means for your reporting |
|---|---|
| IFRS 16 audit file preparation | The completeness memo, judgement memos, rate build-up and maturity analysis assembled before fieldwork starts. Broader than the general IFRS 16 compliance checklist, which covers the standard rather than the file. |
| Response to audit procedures | Written answers to each procedure on the auditor's lease programme, covering population testing, rate derivation and disclosure adequacy. |
| Auditor-facing disclosure review | Your IFRS 16 note checked against the disclosure requirements and against what reviewers typically query first. |
| Independent register review | An outside read of the register while there is still time to act on it. |
| Team handover and coaching | Working sessions on scope, options and modifications with the people who will run it next year. |
Five stages. At each one you know what has been completed and what comes next.
| Step 1: Sweep |
We build the candidate population from payables and contract data rather than the existing register. | OUTPUT: Candidate contract list with categories and values. |
| >>> | ||
| Step 2: Screen |
We test each candidate against the scope criteria, including service contracts that may contain embedded leases. | OUTPUT: Completeness memo naming what is in, what is out and why. |
| >>> | ||
| Step 3: Rate |
We build incremental borrowing rates by term and asset class from sourced components. | OUTPUT: Rate build-up with sources, dates and a refresh policy. |
| >>> | ||
| Step 4: Measure |
We calculate the right-of-use asset and lease liability and reconcile the movement. | OUTPUT: Lease register, measurement workings and maturity analysis. |
| >>> | ||
| Step 5: Evidence |
We pull the audit file together and draft the disclosure note. | OUTPUT: Audit response file, judgement memos and disclosure draft. |
High lease counts across sites, turnover rents as variable payments, and renewal options that change the term every few years.
Dedicated production lines inside supply agreements, and low-value elections applied at scale.
Branch networks with long terms and break clauses, plus covenant sensitivity to the liability.
Vehicle and container fleets, plus haulage contracts with named vehicles that meet the identified-asset test.
Medical equipment under managed-service agreements, which is where embedded leases most often sit.
Both sides of the transaction. Lessor accounting stays close to IAS 17, and subleases are assessed against the right-of-use asset.
Tower, fibre and data centre arrangements, where substitution rights decide whether an asset is identified at all.
Property portfolios accumulated over decades, often with no central contract register at all.
An auditor who finds a lease you did not stops trusting the register. What began as one omission becomes a question about the whole population, and the sample size grows.
The discount rate carries a slower cost. A rate set at transition and applied to every lease added since produces a liability that drifts further from reality each year, and by the time anyone notices it is a restatement, not a year-end tidy-up.
Then there is the covenant. Lease liabilities sit in net debt for most facilities, and a portfolio that grew after transition moves the ratio without anyone deciding to. Lenders notice.
IFRS 16 compliance is not an annual reporting task. It is how you evidence that every commitment the business has made appears on the balance sheet.
Send your current register and a payables extract. We come back with what is missing and what an auditor would question.
We build a candidate population from payables and contract data rather than from the existing register, then screen each candidate against the scope criteria. Starting from payments catches anything recorded as rent, hire or licence fee. The output is a completeness memo naming what is in scope, what is out, and why.
Two weeks is typical for the population review, and groups usually book it four to six weeks ahead of fieldwork. A full remediation with register rebuild and rate work runs longer, six to ten weeks, driven by lease count rather than complexity.
That is a normal starting point, particularly for groups that grew by acquisition. We work from a payables extract covering rent, hire and licence categories, then pull contracts for whatever that surfaces. A register is helpful when it exists but it is not the input we rely on.
Auditors test lease population completeness, sample contracts against the scope criteria, challenge the discount rate and its derivation, check lease term conclusions including options, and test the maturity analysis and disclosure. Completeness and the rate draw the most attention, because both rest on judgement rather than arithmetic.
Screen service, outsourcing and logistics agreements against the three scope tests: is there an identified asset, do you receive substantially all the economic benefits, and do you direct how the asset is used. Managed IT services with dedicated hardware and haulage contracts with named vehicles are the two most common embedded leases.
A contract contains a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. Control means receiving substantially all the economic benefits and directing how and for what purpose the asset is used. A supplier substitution right that is substantive means there is no identified asset and therefore no lease.
The interest rate implicit in the lease if it can be readily determined, and the lessee's incremental borrowing rate if it cannot. In practice lessees rarely have the lessor cash flow data the implicit rate requires, so the incremental borrowing rate applies to most leases. It should reflect the term, the security and the economic environment of the specific lease rather than a single group rate.
Largely no. Lessors continue to classify leases as operating or finance, and the classification test is substantially carried forward from IAS 17. The single model and the removal of the operating and finance distinction apply to lessees only. Subleases are the main exception, because a sublease is assessed against the right-of-use asset rather than the underlying asset.
Two. Short-term leases of 12 months or less at commencement with no purchase option, elected by class of underlying asset. And leases where the underlying asset is of low value when new, elected lease by lease. Both are elections, so an auditor will ask which you took, at what level, and where the decision is recorded.
Yes. Our independent review reads the register, the rate derivation and the disclosure against IFRS 16 and marks the entries a reviewer will want evidence for. Groups that adopted in 2019 and never went back to the population usually start here.
IFRS 16 applies to annual reporting periods beginning on or after 1 January 2019, with earlier application permitted where IFRS 15 was also applied. It applies to any entity reporting under full IFRS, listed or not. Entities reporting under a local GAAP or under IFRS for SMEs follow different requirements.
The treatment depends on whether the modification increases scope at a price commensurate with a standalone price, in which case it is a separate lease. Otherwise the liability is remeasured using a revised discount rate, with the adjustment taken to the right-of-use asset. Reassessing options and variable payment changes follows a different route again.
Yes. The ongoing track assesses modifications, option exercises and new leases as they arise, which keeps the register accurate without a year-end scramble. Groups opening sites through the year tend to prefer this to an annual clean-up.
Every lease your business holds sits on the balance sheet, whether or not the register knows about it. The question is whether an auditor will find one you have not.
Prima's IFRS 16 lease compliance services start with a population review built from your payables data, not your existing register. You get written findings before committing to anything further, and leases sit inside a wider IFRS advisory and accounting practice.
Leases rarely sit alone on a balance sheet. These are the teams that pick up what a lease review surfaces, all under one roof at Prima:
Book Your Free Lease Population Review
Written findings, specific to your portfolio and year end.
Where the register already holds up, the review says so and stops there.
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