IFRS 16 in Practice: Key Lessons from the Post-Implementation Review

As IFRS 16 Leases continues to shape financial reporting, the International Accounting Standards Board (IASB) has initiated a post-implementation review (PIR) to assess how the standard is operating in practice. This pivotal review, now in progress, aims to gather stakeholder feedback and evaluate whether IFRS 16 is meeting its intended objectives—particularly transparency, comparability, and faithful representation of lease obligations.

Dawgen Global breaks down the critical components of the PIR and what they mean for preparers, auditors, and users of financial statements.

Purpose and Scope of the Review

The IASB’s PIR of IFRS 16 serves a dual purpose:

1. Assess the practical effectiveness of IFRS 16, including whether it meets its core objectives.

2. Gather feedback to inform any potential amendments or future standard-setting activities.

The review follows a two-phase approach:

• Phase 1: Identification of key areas for feedback via public consultation (Request for Information – RFI).

• Phase 2: Analysis of public responses and formulation of conclusions or follow-up actions.

The PIR comes several years after the initial implementation of IFRS 16, which became effective in 2019. This timing ensures sufficient real-world data is available from a wide range of entities and jurisdictions.

Key Areas Under Scrutiny

In its March 2025 meeting, the IASB outlined several critical issues to be explored in the RFI, including the following:

1. Clarity and Application of Lease Terms

• Does IFRS 16 provide a clear and consistent framework for determining lease terms?

• Are entities able to assess options such as extensions and terminations with consistency?

This topic is especially pertinent for industries with complex leasing arrangements or frequent renegotiations.

2. Variable Lease Payments

• Are the requirements around variable lease payments clear?

• Do lessees find it straightforward to determine which payments to include in lease liability measurement?

Stakeholders have raised concerns over the complexity and operational burden of accounting for uncertain lease payment structures, such as performance-based rents.

3. Discount Rate Determination

• Is the guidance on using the incremental borrowing rate (or other discount rates) sufficiently clear?

• Are companies applying these requirements consistently?

This issue has significant implications for the measurement of lease liabilities and right-of-use assets—especially in environments with volatile interest rates or where internal lending rates differ across jurisdictions.

4. Cost vs Benefit Assessment

• Do the benefits to financial statement users outweigh the costs of compliance, auditing, and enforcement?

• Are the costs higher or lower than originally expected by the IASB?

This component seeks to validate the value proposition of IFRS 16, particularly for small to mid-sized enterprises that may lack the infrastructure for complex lease accounting systems.

5. Cash Flow Reporting and Disclosures

• Are the disclosures and cash flow presentations adding value?

• Are users receiving enough insight into lease-related cash movements?

Disclosures under IFRS 16 are intended to enhance transparency, but their usefulness depends on how consistently and comprehensively they are prepared.

Intersections with Other Standards

The IASB is also exploring interactions between IFRS 16 and other standards such as:

• IFRS 9 Financial Instruments, particularly in relation to lease modifications and extinguishments.

• IFRS 15 Revenue from Contracts with Customers, especially regarding sale and leaseback transactions and revenue recognition.

This alignment is essential to avoid inconsistencies in treatment and ensure that financial reporting remains cohesive across related accounting areas.

Stakeholder Implications

For preparers, the PIR signals the need to:

• Reassess internal lease accounting practices in light of potential changes or clarifications.

• Engage proactively in the comment period (expected to be 120 days) to voice industry-specific challenges.

For auditors and enforcement bodies, the PIR provides insight into:

• Areas where judgment and interpretation vary, potentially leading to compliance risks.

• Opportunities to refine audit procedures around lease estimation assumptions and disclosures.

For investors and analysts, understanding the outcome of the PIR can:

• Improve confidence in lease-related financial information.

• Identify companies with potential compliance gaps or reporting inconsistencies.

What’s Next?

The IASB plans to publish the RFI by mid-June 2025, opening the door for public input. Following the comment period, the Board will analyze the feedback to decide whether amendments or clarifications are needed.

Final Thoughts from Dawgen Global

The Post-Implementation Review (PIR) of IFRS 16 is far more than a procedural milestone—it represents a vital moment for reflection, recalibration, and reform in lease accounting. IFRS 16 fundamentally reshaped how lease obligations are recognized and reported, bringing operating leases onto the balance sheet and introducing significant changes in how companies measure and disclose lease-related information.

However, as the IASB seeks feedback through this PIR, it is clear that practical challenges remain, particularly in areas involving:

• Subjective judgments about lease terms,

• Complexities in accounting for variable lease payments,

• Estimation of appropriate discount rates, and

• Cost-benefit concerns for preparers and auditors.

At Dawgen Global, we view this review as an opportunity for the accounting and business community to shape the future of the standard. Your experience—whether as a preparer, auditor, regulator, or investor—is valuable in highlighting what works, what doesn’t, and what could be improved.

We encourage organizations of all sizes, especially SMEs, to take this opportunity to:

• Evaluate how IFRS 16 is affecting their financial performance, operational efficiency, and stakeholder reporting.

• Review and document the implementation challenges they’ve faced—especially during transitional phases or in ongoing remeasurements.

• Submit constructive feedback to the IASB to help shape guidance that is practical, scalable, and transparent.

Our Role at Dawgen Global

As a trusted advisory and assurance firm across the Caribbean and beyond, Dawgen Global is here to:

• Conduct impact assessments of IFRS 16 on your financial statements.

• Provide technical guidance on complex areas like lease modifications, sale and leaseback transactions, and lease classification.

• Assist in the drafting of responses to the Request for Information (RFI), ensuring your feedback to the IASB is aligned with regulatory expectations and industry insights.

• Deliver training and updates to your finance and audit teams to remain compliant and well-informed.

📢 Need help reviewing your lease accounting practices or preparing a submission for the PIR?

Let Dawgen Global support you in navigating this review confidently and effectively.

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