Leases (IFRS 16 Current critiques)
Dissertation
By
WRITE YOUR NAME AND SURNAME
ICB Member ID: STUDENT NUMBER
Submitted in partial fulfilment of the requirements for the National Diploma:
FINANCIAL ACCOUNTING
(SAQA ID: 20366)
June 2024
DECLARATION BY STUDENT:
I declare that this min-dissertation submitted by me is my own work that l have
referenced all the sources that l have used and that no part was previously
submitted at any tertiary institution.
Signature: YOUR SIGNANTURE Date: SUBMISSION DATE
,Table of Contents
Acknowledgements................................................................................................ 4
Table of Figures..................................................................................................... 5
Chapter 1: Research Overview.............................................................................. 6
1.1 Abstract........................................................................................................ 6
1.2 Purpose......................................................................................................... 7
1.3 Research Method.......................................................................................... 7
1.4 Frame of Reference...................................................................................... 7
1.5 Research Results and Analysis.....................................................................7
1.6 International Critiques Conclusion................................................................7
1.7 Research structure....................................................................................... 8
Chapter 2: Brief overview of IFRS 16.....................................................................9
2.1 0bjective and scope of IFRS..........................................................................9
Scope of the standard................................................................................... 10
2.2 Recognition of IFRS 16................................................................................ 11
2.3 Leases recognition...................................................................................... 12
Initial recognition.............................................................................................. 12
Initial Measurement of Leases..........................................................................13
Initial measurement of the right-of-use asset................................................13
Components of the right-of-use asset...........................................................13
Initial measurement of the lease liability..........................................................14
Components of the lease liability..................................................................14
Subsequent measurement of the right-of-use asset.........................................14
Elements of cost............................................................................................ 14
Depreciation.................................................................................................. 15
Impairment.................................................................................................... 15
Fair value and revaluation model..................................................................15
Subsequent measurement of the lease liability................................................15
Accruing interest on the lease liability...........................................................15
Lease payments............................................................................................ 16
Reassessments of the lease liability..............................................................16
2.4 Presentation and disclosure........................................................................16
Presentation..................................................................................................... 17
, Disclosures....................................................................................................... 18
Chapter 3: Positive Critiques IFRS 16...................................................................19
This Effects Analysis accompanies, but is not part of, IFRS 16.........................19
Benefits for investors and analysts...................................................................19
Benefits for companies..................................................................................... 19
‘Non-GAAP’ information.................................................................................... 20
Improved decision-making................................................................................20
Leases and borrowings to buy assets...............................................................21
On and off balance sheet lease........................................................................22
Variable lease payments.................................................................................. 22
Optional payments........................................................................................... 23
Key cost reliefs................................................................................................. 23
Exemptions....................................................................................................... 24
Chapter 4 Perceived Negative Critiques..............................................................25
4.1 Main Challenges and Impacts.....................................................................25
4.2 Challenges for lessees................................................................................25
4.3 Challenges for lessors.................................................................................29
4.4 Discussion on the Changes and Challenges of IFRS 16 in the Light of
Substance over Form........................................................................................ 31
Chapter 5: International Conclusion.....................................................................36
Final Considerations......................................................................................... 36
Bibliography......................................................................................................... 38
, Acknowledgements
Firstly, I would like to thank God for his sustenance over this time and for his strength,
knowledge, and wisdom he provided me with during this time. Secondly, I would like to
express my gratitude towards my family for their patience with me in this time, as well as my
advisor and editor, who has helped me through this process with guidance and feedback. I
would also like to thank all the respondents involved in this study for their willingness to
participate and their valuable information.
Dissertation
By
WRITE YOUR NAME AND SURNAME
ICB Member ID: STUDENT NUMBER
Submitted in partial fulfilment of the requirements for the National Diploma:
FINANCIAL ACCOUNTING
(SAQA ID: 20366)
June 2024
DECLARATION BY STUDENT:
I declare that this min-dissertation submitted by me is my own work that l have
referenced all the sources that l have used and that no part was previously
submitted at any tertiary institution.
Signature: YOUR SIGNANTURE Date: SUBMISSION DATE
,Table of Contents
Acknowledgements................................................................................................ 4
Table of Figures..................................................................................................... 5
Chapter 1: Research Overview.............................................................................. 6
1.1 Abstract........................................................................................................ 6
1.2 Purpose......................................................................................................... 7
1.3 Research Method.......................................................................................... 7
1.4 Frame of Reference...................................................................................... 7
1.5 Research Results and Analysis.....................................................................7
1.6 International Critiques Conclusion................................................................7
1.7 Research structure....................................................................................... 8
Chapter 2: Brief overview of IFRS 16.....................................................................9
2.1 0bjective and scope of IFRS..........................................................................9
Scope of the standard................................................................................... 10
2.2 Recognition of IFRS 16................................................................................ 11
2.3 Leases recognition...................................................................................... 12
Initial recognition.............................................................................................. 12
Initial Measurement of Leases..........................................................................13
Initial measurement of the right-of-use asset................................................13
Components of the right-of-use asset...........................................................13
Initial measurement of the lease liability..........................................................14
Components of the lease liability..................................................................14
Subsequent measurement of the right-of-use asset.........................................14
Elements of cost............................................................................................ 14
Depreciation.................................................................................................. 15
Impairment.................................................................................................... 15
Fair value and revaluation model..................................................................15
Subsequent measurement of the lease liability................................................15
Accruing interest on the lease liability...........................................................15
Lease payments............................................................................................ 16
Reassessments of the lease liability..............................................................16
2.4 Presentation and disclosure........................................................................16
Presentation..................................................................................................... 17
, Disclosures....................................................................................................... 18
Chapter 3: Positive Critiques IFRS 16...................................................................19
This Effects Analysis accompanies, but is not part of, IFRS 16.........................19
Benefits for investors and analysts...................................................................19
Benefits for companies..................................................................................... 19
‘Non-GAAP’ information.................................................................................... 20
Improved decision-making................................................................................20
Leases and borrowings to buy assets...............................................................21
On and off balance sheet lease........................................................................22
Variable lease payments.................................................................................. 22
Optional payments........................................................................................... 23
Key cost reliefs................................................................................................. 23
Exemptions....................................................................................................... 24
Chapter 4 Perceived Negative Critiques..............................................................25
4.1 Main Challenges and Impacts.....................................................................25
4.2 Challenges for lessees................................................................................25
4.3 Challenges for lessors.................................................................................29
4.4 Discussion on the Changes and Challenges of IFRS 16 in the Light of
Substance over Form........................................................................................ 31
Chapter 5: International Conclusion.....................................................................36
Final Considerations......................................................................................... 36
Bibliography......................................................................................................... 38
, Acknowledgements
Firstly, I would like to thank God for his sustenance over this time and for his strength,
knowledge, and wisdom he provided me with during this time. Secondly, I would like to
express my gratitude towards my family for their patience with me in this time, as well as my
advisor and editor, who has helped me through this process with guidance and feedback. I
would also like to thank all the respondents involved in this study for their willingness to
participate and their valuable information.
