IFRS 16 Implementation Timeline: 2019-2025 Updates

2006: The Lease Accounting Project Begins

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) launched a joint project to address the longstanding criticism that operating lease accounting (under IAS 17) allowed companies to keep trillions in lease obligations off their balance sheets.

Key Issue: Estimated $3+ trillion in operating lease commitments were hidden in footnotes rather than recognized on balance sheets.

2010-2013: Exposure Drafts and Feedback

• August 2010: First Exposure Draft published
• May 2013: Revised Exposure Draft issued after extensive stakeholder feedback
• Key Concerns: Complexity, cost of implementation, impact on small businesses

Over 2,000 comment letters received from preparers, auditors, investors, and standard-setters worldwide.

January 2016: IFRS 16 Issued

After 10 years of development, the IASB issued IFRS 16 "Leases", representing one of the most significant changes to financial reporting in decades.

Key Changes:

• Eliminated operating vs. finance lease distinction for lessees
• Required on-balance sheet recognition for virtually all leases
• Introduced Right-of-Use (ROU) asset model
• Set effective date: January 1, 2019 (with early adoption permitted)

2016-2018: Preparation Period

Companies worldwide began extensive preparation:

• Lease Identification: Reviewing thousands of contracts to identify embedded leases
• Data Collection: Centralizing lease information (often scattered across departments)
• Systems Implementation: Implementing or upgrading lease accounting software
• Policy Development: Determining incremental borrowing rates, practical expedients
• Stakeholder Communication: Explaining impact to investors and lenders

Estimated Global Implementation Costs: Billions of dollars spent on consultants, software, and internal resources.

January 1, 2019: IFRS 16 Becomes Effective

IFRS 16 became mandatory for annual reporting periods beginning on or after this date for most entities worldwide.

Regional Adoption: Singapore & Malaysia

Singapore: SFRS(I) 16

• Effective Date: January 1, 2019
• Issued By: Accounting Standards Council (ASC) Singapore
• Status: Word-for-word identical to IFRS 16
• Applicability: All Singapore-incorporated companies applying SFRS(I)
• Regulator: Accounting and Corporate Regulatory Authority (ACRA)

Malaysia: MFRS 16

• Effective Date: January 1, 2019
• Issued By: Malaysian Accounting Standards Board (MASB)
• Status: Word-for-word identical to IFRS 16
• Applicability: All entities except private entities applying MPERS
• Regulator: Securities Commission Malaysia, Bursa Malaysia

Transition Approaches Used

Companies had two main options for transition:

May 2020: COVID-19 Rent Concessions Amendment

Background: The COVID-19 pandemic led to widespread rent concessions (deferrals, reductions, waivers) across industries.

Amendment Issued: IFRS 16 Amendment - COVID-19-Related Rent Concessions

• Effective Date: June 1, 2020 (with early adoption permitted)
• Practical Expedient: Lessees could elect not to assess whether COVID-19-related rent concessions were lease modifications
• Treatment: Recognize as negative variable lease payments in P&L
• Conditions:
  • Total lease payments reduced/not changed
  • Reduction relates to payments originally due on or before June 30, 2021
  • No other substantive changes to lease terms

Impact: Simplified accounting for thousands of companies receiving rent relief during lockdowns.

March 2021: Extension of COVID-19 Rent Concessions

As the pandemic extended beyond initial expectations, the IASB extended the practical expedient:

• New Cutoff Date: June 30, 2022 (extended from June 30, 2021)
• Effective Date: April 1, 2021
• Reason: Continued economic disruption requiring ongoing rent concessions

May 2020 / May 2023: Lease Liability in a Sale and Leaseback

Amendment Focus: Clarified how a seller-lessee measures the lease liability in a sale and leaseback transaction.

Key Clarifications:

• After commencement, seller-lessee applies lease liability measurement requirements consistently with other leases
• Does not recognize gain/loss relating to the right of use retained
• Prevents seller-lessee from recognizing gain on rights retained

Effective Date: January 1, 2024 (with early adoption permitted)

Impact: Affects companies using sale-leaseback arrangements for financing (common in real estate and aviation)

2021: IAS 12 Amendment - Deferred Tax Related to Leases

While not an IFRS 16 amendment, this IAS 12 change significantly impacts IFRS 16 accounting:

Amendment: IAS 12 "Income Taxes" - Deferred Tax related to Assets and Liabilities arising from a Single Transaction

• Effective Date: January 1, 2023
• Key Change: Narrowed the scope of the initial recognition exemption
• Impact on IFRS 16: Companies must now recognize deferred tax on ROU assets and lease liabilities

Maturity Phase

As of 2025, IFRS 16 is now in its maturity phase:

• Widespread Adoption: Implemented by over 100 countries worldwide
• Systems Stabilized: Most companies have integrated IFRS 16 into BAU processes
• Market Acceptance: Investors and analysts now factor lease liabilities into valuations
• Audit Focus: Emphasis shifted from transition to ongoing compliance and lease modifications

Ongoing Challenges

Despite maturity, companies continue to face challenges:

• Lease Modifications: Accounting for rent increases, term extensions, space reductions
• IBR Determination: Updating incremental borrowing rates in changing interest rate environments
• Portfolio Management: Managing hundreds or thousands of leases efficiently
• Deferred Tax: Implementing new IAS 12 requirements from 2023
• Embedded Leases: Identifying leases within service contracts

Regional Updates

Singapore (SFRS(I) 16)

• Status: Fully implemented, no local variations
• ACRA Focus: Enhanced disclosure requirements in annual reports
• Enforcement: Financial Reporting Surveillance Programme reviews compliance
• IBR Guidance: Entities commonly use Singapore Prime Lending Rates (4.25% - 5.75% as of Dec 2025)

Malaysia (MFRS 16)

• Status: Fully implemented, consistent with IFRS 16
• Regulator Focus: Securities Commission reviewing ESG integration with lease reporting
• IBR Guidance: Base Lending Rate (BLR) 6.40%-6.65% commonly used as starting point
• Industry Impact: Significant balance sheet impact in retail, F&B, automotive sectors

Expected Developments

1. Post-Implementation Review

The IASB typically conducts post-implementation reviews (PIRs) 2-3 years after standards become effective:

• Timing: Likely 2025-2026
• Focus Areas:
  • Whether objectives were met
  • Unexpected costs or implementation challenges
  • Areas requiring clarification or improvement
• Potential Outcomes: Educational materials, minor amendments, or more significant changes

2. Technology Integration

Ongoing trend toward automation:

• AI-Powered Lease Identification: Automatic scanning of contracts for embedded leases
• Real-Time Calculations: Dynamic lease liability updates as interest rates change
• Integration with ERP: Seamless connection between lease systems and general ledger
• Blockchain Pilots: Some companies exploring blockchain for lease record-keeping

3. Sustainability Reporting Links

Growing connection between lease accounting and ESG:

• Carbon Accounting: Leased assets (especially real estate and vehicles) included in Scope 1/2 emissions
• IFRS S2 Climate: Lease commitments may impact climate-related financial disclosures
• Green Leases: Increasing prevalence of sustainability clauses in lease contracts

4. Convergence with ASC 842

Potential future alignment between IFRS 16 and US GAAP ASC 842:

• Current Difference: ASC 842 maintains operating vs. finance lease distinction for P&L presentation
• Future Possibility: FASB may consider aligning with IFRS 16's single model approach
• Likelihood: Low in near term, but possible in long term (5-10 years)