Lease Accounting Under IFRS 16: Are the Benefits Worth the Costs?

When IFRS 16 Leases came into effect in 2019, it ushered in a major shift in lease accounting by bringing most leases onto the balance sheet. The goal was clear: improve transparency and provide users of financial statements with a more faithful representation of a company’s financial position and obligations.

Several years later, as the International Accounting Standards Board (IASB) conducts its Post-Implementation Review (PIR) of IFRS 16, a key question looms: Do the benefits to users of financial statements outweigh the costs of implementation, compliance, and ongoing application?

At Dawgen Global, we examine this question with a lens on both large enterprises and SMEs—two groups experiencing very different journeys under this standard.

The Intended Benefits of IFRS 16

The primary advantages of IFRS 16 were envisioned to include:

• Greater transparency: By eliminating the off-balance-sheet treatment of operating leases, IFRS 16 gives users a clearer view of an entity’s lease liabilities and asset usage.

• Improved comparability: Financial statements become more comparable across companies and industries, reducing the ambiguity between leased and owned assets.

• Better decision-making: Investors and creditors gain a more comprehensive understanding of leverage, capital commitments, and operational flexibility.

• Enhanced disclosures: Detailed disclosures on lease terms, variable lease payments, and future lease commitments help stakeholders assess risk and cash flow impact.

But at What Cost?

While the benefits are conceptually strong, their realization has come at a significant operational and financial cost for many companies, especially during implementation. These include:

• 📉 Initial system overhauls: Many organizations had to implement or upgrade lease accounting software to capture, track, and report lease data.

• 👩‍💼 Staff training and change management: Finance and accounting teams required education on the new standard, including how to handle lease remeasurement and disclosures.

• 🔄 Ongoing compliance burden: Regular reassessment of lease terms, discount rates, and variable payments has added continuous workload for accounting teams.

• 🔍 Audit complexity: Auditors now spend more time evaluating lease assumptions, inputs, and calculations, potentially increasing audit fees and timelines.

Cost vs. Benefit: A Tale of Two Company Sizes

🏢 Large Enterprises

• Advantages: Larger entities often already had robust ERP systems and finance teams to absorb IFRS 16’s complexity.

• Costs Justified: For many, the added transparency improved credit ratings and investor confidence, making the cost of compliance worthwhile.

• Challenges: However, even large firms noted challenges with data quality, lease contract interpretation, and integrating systems across subsidiaries.

🧾 Small and Medium Enterprises (SMEs)

• Disproportionate Burden: SMEs often lack the internal resources, technology, and expertise to manage IFRS 16 efficiently.

• Limited Benefits: Given that many SMEs are not publicly listed and have simpler reporting obligations, the incremental value of IFRS 16 to financial statement users may be minimal.

• Compliance Fatigue: The standard can feel onerous and disproportionate, especially where lease contracts are short-term, low value, or infrequent.

What the IASB Is Asking

The current PIR of IFRS 16 explicitly seeks feedback on whether:

• The benefits to users of the information reported under IFRS 16 align with expectations,

• The ongoing costs of application, enforcement, and audit are significantly higher than anticipated, and

• Certain sectors or company sizes are disproportionately impacted.

This is a crucial opportunity for businesses to voice whether IFRS 16 is delivering value in proportion to the effort it demands.

Dawgen Global’s Perspective

At Dawgen Global, our experience across diverse clients tells us that:

• The spirit of IFRS 16 is sound—financial transparency has improved.

• But one-size-fits-all application may not be efficient, particularly for SMEs and non-listed entities.

• There is growing justification for proportional relief or simplified application frameworks to ensure the standard remains scalable and useful across different business sizes.

We assist clients in:

• Assessing the real cost of IFRS 16 compliance,

• Designing efficient lease accounting processes,

• Implementing right-sized technology tools, and

• Preparing feedback submissions to the IASB’s consultation process.

Final Takeaway: Rebalance Is Needed

As IFRS 16 continues to evolve, the current Post-Implementation Review (PIR) marks a crucial opportunity to rebalance the cost-benefit equation. While the standard has undoubtedly improved lease transparency and comparability, the practical burden on preparers, particularly small and mid-sized entities, has become increasingly evident.

The original intent of IFRS 16—to bring lease liabilities onto the balance sheet and enhance investor insight—has largely been fulfilled at a conceptual level. However, the reality is that many businesses are now wrestling with the unintended consequences: ongoing compliance costs, system integration challenges, remeasurement complexities, and increased audit scrutiny.

🔁 Rebalancing Means More Than Revision

This is not just a call for technical adjustments, but a call for practical recalibration:

• Should simplified frameworks or relief measures be introduced for SMEs?

• Can materiality thresholds and reassessment triggers be refined to reduce unnecessary rework?

• Are current disclosure requirements truly useful to financial statement users, or do they overwhelm readers with data while exhausting preparers?

The IASB’s review presents a timely opening to address these questions and adjust course—not to undermine the standard’s purpose, but to ensure it remains relevant, achievable, and scalable across diverse business environments.

🏢 Time for an Internal Check-In

This moment also serves as a wake-up call for companies to:

• Audit their current IFRS 16 processes for efficiency and cost-effectiveness,

• Evaluate whether manual efforts can be reduced through better tools or outsourced support,

• Reflect on whether their current lease accounting approach is strategically aligned with business goals—or merely reactive compliance.

✅ Our Recommendation

Don’t wait for regulatory changes to start optimizing. Whether you’re a regional SME or a multinational group, now is the time to:

• Reassess your lease portfolio,

• Streamline internal controls and data workflows, and

• Ensure your finance team is IFRS 16-ready for future updates or scrutiny.

📧 Need help evaluating your IFRS 16 compliance or drafting feedback for the IASB review?
At Dawgen Global, our multidisciplinary teams can help you:

✔ Review your lease accounting systems and processes
✔ Identify cost-saving opportunities in ongoing IFRS 16 compliance
✔ Prepare well-supported submissions for the IASB’s public consultation
✔ Train your finance teams for future updates

Let’s ensure you’re not just compliant—but efficient, strategic, and ahead of the curve.

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