In January 2016, the International Accounting Standards Board (IASB) issued IFRS 16 ‘Leasing’, which represents the first major overhaul in lease accounting for over 30 years. The External Reporting Board (XRB) then took this standard and approved it virtually word for word the following month in February 2016. The Standard brings fundamental changes to lease accounting that replace previous accounting that is considered no longer fit for purpose. These changes become effective from 1 January 2019. Though early adoption is permitted.
This article considers the topical area of ‘Understanding the discount rate’. Under IFRS 16 ‘Leases’, discount rates are required to determine the present value of the lease payments used to measure a lessee’s lease liability. Discount rates are also used to determine lease classification for a lessor and to measure a lessor’s net investment in a lease.