What Are The International Financial Reporting Standards?

International Financial Reporting Standards (IFRS) are global accounting standards that seek to increase credibility and transparence. IFRS standards are issued by the International Accounting Standards Board and help business operators and investors to make informed financial decisions.  There are different types of IFRS for different industries. IFRS differ from Generally Accepted Accounting Principles (GAAP) in that these standards are global, whereas GAAP is the accounting framework used in the United States.

What Is IFRS 16?

IFRS is a lease accounting standard published by the International Accounting Standards Board that affects the way companies account for leases in financial disclosures. This standard went into effect in January of 2016, replacing IAS 17. IFRS 16 is different from IAS 17 in that operating leases are now required to be accounted for as finance leases. This eliminates the opportunity for corporations to report operating leaves in the footnotes of financial statements.

IFRS 16 Objective

The official statement from the IFRS Foundation is that IFRS 16’s objective is “to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.”

How Does IFRS 16 Work?

IFRS 16 requires lessees to record assets and liabilities for all leases holding a term of more than one year, with an exemption for low value assets. Lessees must recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. 

IFRS 16 vs ASC 842

The primary difference between IFRS 16 and ASC 842 is the criteria for classifying leases. The Financial Accounting Standards Board uses a dual-model approach for lease classification in regard to ASC 842, whereas the International Accounting Standards Board requires a single model. Under ASC 842, leases could be classified as operating or finance. Under IFRS 16, however, all non-exempt leases are treated as finance leases were when under IAS 17. In cases where ASC 842 is relevant, LeaseSCRE can advise. 

About The Author

Matthew Goldberg is a Managing Director at A&M who specializes in valuation of debt, equity, complex instruments, businesses, and assets. Please reach out to Mr. Goldberg if you have any questions about the program or you can sign up today.