Andrew Marshall FCA, senior technical partner at KPMG UK, considers the impact of discount rates when leases come onto the balance sheet under the new IFRS 16 Leases standard, effective from 1 January 2019
At first sight IFRS 16 Leases is a more straightforward and intuitive new standard than IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. With a few exceptions (small or short-term leases) it brings all leases on balance sheet at the net present value of the future payments, creating a new lease liability and a matching ‘right of use asset’ on the preparer’s balance sheet.
However, there are a number of complexities which are starting to come to the fore as preparers work through their transition projects and calculate those lease liabilities. In this article I wanted to hone in on one of those areas of challenge, the topic of the discount rate which a lessee should use to calculate the net present value of those future cash flows.
