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27 March 2017

EFRAG Endorsement Advice on IFRS 16 Leases

EFRAG has completed its due process regarding IFRS 16 Leases and has submitted its Endorsement Advice to the EC.

IFRS 16 replaces IAS 17 Leases and associated interpretations. IFRS 16 eliminates the classification of leases as either finance or operating for lessees and requires lessees to recognise assets and liabilities for all leases, with some optional exemptions. It substantially retains the lessor accounting from IAS 17.

IFRS 16 will become effective for annual periods beginning on or after 1 January 2019, with earlier application permitted under certain conditions.

EFRAG has concluded that IFRS 16 meets the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, and raises no issues regarding prudent accounting. EFRAG has identified some limitations with regard to relevance, reliability and comparability but has assessed that they constitute an acceptable trade-off between the objective of achieving a complete and faithful representation of information on the one hand and reducing complexity of applying IFRS 16 on the other hand. These limitations would not prevent IFRS 16 from meeting the said qualitative characteristics.

EFRAG has also assessed that IFRS 16 does not create any distortion in its interaction with other IFRS Standards and that all necessary disclosures are required.

EFRAG has submitted its Endorsement Advice relating to IFRS 16 for use in the EU and EEA. EFRAG assesses that IFRS 16 meets all technical endorsement criteria of the IAS Regulation and is conducive to the European public good. It therefore recommends endorsement of IFRS 16. EFRAG's recommendation is explained in the letter to the European Commission and the accompanying appendices.

Full press release

Full Endorsement Advice

© EFRAG - European Financial Reporting Advisory Group

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