In this series we have previously explored the
key IFRS 16 headlines, which groups will be most impacted by the
new standard and how groups should be preparing for transition to
IFRS 16. Building on the previous articles, we shall continue to
consider key areas of analysis and judgment that should be
considered as part of any IFRS 16 implementation exercise. In this
article we focus in the importance and relevance of discount rates
in the IFRS 16 calculation.
Discount rates
A key principle of IFRS 16 is that leases are now brought
'on balance sheet' for lessees and effectively viewed as a
source of financing to the company. As part of reflecting this
financing nature of the arrangement, the discount rate applied to
the lease is therefore relevant in order to calculate both the
discounted day one lease liability and the future interest costs on
the lease arrangement. This can bring complexity for groups who
have not previously been required to derive such discount
