Differences between IFRS 16 and IAS 17 Leases
Key differences
| Area | IAS 17 | IFRS 16 |
|---|---|---|
| Classification of lease by lessee | Lessees account for lease transaction as operating or finance lease depending on rules and tests of classification. | Lessees to recognise nearly all leases on the balance sheet which will reflect their right-to-use an asset for a period of time and the associated liability for payments. |
| Definition of lease | In determining whether an arrangement is a lease, focus of the standard is on risk-and-rewards model. | In determining whether an arrangement is a lease, focus of the standard is on right-of-use model. |
| Nature of expense recognised under operating lease | Lease rentals are recognised as ‘operating lease expense’ in the income statement. | Expense is recognised as ‘finance charge on lease liability’ and ‘depreciation of right-of-use asset’. |
| Basis of expense recognition under operating lease | Lease payments are recognised as an expense on a straight-line basis over the lease term. | Finance charge is recognised on an effective interest rate basis and depreciation is recognised in accordance with IAS 16 resulting in front-loaded expense recognition in the initial period of the lease. |
| Recognition of right-of-use asset | Finance leased assets and liabilities are measured at the fair value of the leased property or, if lower, the present value of the minimum lease payments. | Right-of-use asset is measured at the present value of the lease payments that are not paid at that date. There is no reference to the fair value. |
| Re-assessment of lease liabilities -lessees | Not dealt with by IAS 17. | After the commencement date, lessees are required to remeasure the lease liability when there is a lease modification (i.e., a change in the scope of a lease, or the consideration for a lease that was not part of the original terms and conditions of the lease) that is not accounted for as a separate contract or there is a change in estimate relating to lease term, assessment of purchase option, residual value guarantee, variable lease payments relating to market rate / index rate etc. |
| Statement of cash flows | Lease expense associated with operating lease is recognised in statement of cash flows under operating activity. | Lease expense is recognised in the statement of cash flows under operating activity and financing activity. |
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