6 Post-Implementation Review of IFRS 16 Leases

25 September 2025 Agenda Paper 6 OFFICIAL - PUBLIC

Executive Summary

Project Type: Influencing Project Scope: Limited

Purpose of the paper

The purpose of this paper is to obtain Board's approval:

1. to issue a Final Comment Letter (FCL) (Appendix A) in response to the IASB Request for Information (RFI): Post-implementation Review (PIR) of IFRS 16 Leases;
2. for the publication of the Feedback Statement (Appendix B); and
3. of the draft Due Process Compliance Statement (DPCS) (Appendix C).

Summary of the Issue

The IASB is undertaking a PIR of IFRS 16 to assess whether the new requirements are working as intended. The RFI¹ was published by the IASB on 17 June 2025 with a comment deadline of 15 October 2025. The RFI is seeking feedback on:

• Stakeholders' experiences relating to IFRS 16 and their overall views on the Standard;
• Matters in IFRS 16 that the IASB has identified as areas of interest to examine further in this post-implementation review;
• Suggestions for improvements to future transition requirements; and
• Other information relevant to the PIR of IFRS 16 not specifically addressed in the RFI, including its relationships with the requirements in other IFRS Accounting Standards such as applying IFRS 16 with IFRS 15 Revenue from Contracts with Customers when assessing whether the transfer of an asset in a sale and leaseback transaction is a sale².

The UKEB's Draft Comment Letter (DCL) was published for UK stakeholder comment on 25 July 2025 with a deadline of 8 September 2025.

Decisions for the Board

1Subject to any amendments arising at this meeting, does the Board approve:

1. The FCL for issue to the IASB and publication on the UKEB website?
2. The Feedback Statement for publication on the UKEB website?
3. The [draft] DPCS?

Recommendation

The Secretariat recommends that, the Board approves the FCL and Feedback Statement for issue and publication, subject to any amendments agreed at this meeting.

Appendices

• Appendix A Final Comment Letter
• Appendix B Feedback Statement
• Appendix C [Draft] Due Process Compliance Statement

Background

1The IASB issued its RFI on the PIR of IFRS 16 Leases on 17 June 2025. The comment period ends on 15 October 2025.

2The background to PIR of IFRS 16 can be found in the project implementation plan (PIP). An education session on the PIR of IFRS 16 was provided to the Board on 24 June 2025. The Secretariat conducted desk-based research and a preparer survey. In addition, the PIR was discussed with the UKEB Advisory Groups.

3The DCL was approved at the 15 July 2025 UKEB meeting and published on the UKEB website on 25 July 2025, with a comment deadline of 8 September 2025. The DCL noted the following:

1. There is general support for IFRS 16, and no fatal flaws have been identified.
2. The ongoing costs of applying IFRS 16 remains high. These ongoing costs could be mitigated by simplifying some requirements and/or extending the exemptions currently in IFRS 16.
3. There are wider concerns about the accounting for sale and leaseback transactions that may warrant a focused project to clarify the requirements.

4UKEB news alerts and LinkedIn posts were used to raise awareness of the publication of the DCL.

Outreach on the DCL

5Due to the limited scope of the project and the findings from initial outreach activities, no additional outreach was conducted once the DCL was published.

6Two comment letters from preparers were received in response to the DCL. One respondent asked that their response not be made publicly available, so it has only been made available to UKEB members. The other letter is available on the UKEB website³. Both respondents generally agreed with the UKEB's conclusions but each raised specific issues.

Volatility created by a variable rate subject to substantial fluctuations

7One stakeholder raised concerns about the volatility created by applying IFRS 16 to leases based on variable rates that are subject to substantial fluctuations in the short term.

8If the lease payments included in the initial measurement of the lease liability comprise variable lease payments that depend on an index or a rate, IFRS 16 paragraph 27(b) requires the lease liability to be “initially measured using the index or rate as at the commencement date”. The lease liability and asset are subsequently adjusted each period for changes in the index. If the index, such as a shipping index, is subject to significant fluctuations, this can lead to large changes in the lease liability over time.

9The stakeholder believes that this volatility is not economically representative of the actual liability arising at the balance sheet date. An unusually low or high rate at measurement date would not be representative of the index rates expected to prevail over the majority of the lease term.

10When developing IFRS 16, the IASB considered this issue in some detail. They discussed if the use of forecasting techniques should be permitted to determine the expected effects of changes in an index instead. However, they concluded (paragraph BC166 of the Basis for Conclusions of IFRS 16) that:

1. Forecasting changes in an index or a rate requires macroeconomic information that may not be readily available to all entities, possibly resulting in measurement uncertainty.
2. The usefulness of the enhanced information obtained using such a forecast often might not justify the costs of obtaining it.
3. When considering allowing a lessee to use forward rates when measuring lease liabilities, the IASB decided not to do so because this would reduce comparability between those using forward rates and those not doing so.

11The Secretariat believes the IASB's rationale set out in paragraph BC166 remains appropriate, particularly based on cost/benefit and comparability. Therefore, no amendments to the DCL have been proposed. However, the UKEB will continue to monitor the project and consider the relevance of this feedback.

Treatment of property leased and then sub-let.

12Another stakeholder raised concerns about the divergence in treatment between IFRS 9 Financial Instruments and IFRS 16 requirements that can arise when a property is leased and then sub-let.

13The stakeholder considers these two transactions to be similar and is concerned that the accounting treatment varies depending on the counterparty.

1. If the property is leased from and then sub-let back to the same party (the original lessor), the current IFRS guidance deems no transfer to take place. The sub-lease transaction is recognised and measured in accordance with paragraph 103 of IFRS 16 and subsequently IFRS 9.
2. However, if the third party acquiring the sub-lease is different from the original lessor, a transfer is deemed to have taken place, and the right of use asset and lease liability are recognised and measured in accordance with IFRS 16.

14Therefore, the Secretariat's view is that the difference in accounting treatment is reasonable and no amendments to the DCL have been proposed. However, the UKEB will continue to monitor the project and consider the relevance of this feedback.

FCL

15No substantive changes have been made to the DCL. The contextual information included in boxes in the DCL (the green boxes) for stakeholder information have been removed.

Questions for the Board

1Subject to any amendments arising at this meeting, does the Board approve:

1. The FCL for issue to the IASB and publication on the UKEB website?
2. The Feedback Statement for publication on the UKEB website?
3. The draft DPCS?

Next steps

16The FCL will be submitted to the IASB by 15 October 2025. The FCL together with the Feedback Statement will be published on the UKEB website. The DPCS will be updated to reflect final project steps and presented to the October 2025 UKEB meeting for noting.

Project timeline

Post-implementation Review of IFRS 16 Leases - Project timeline.

17The diagram below is a graphical view of the mandatory milestone activities described above.

Appendix A: Final Comment Letter

25 September 2025 Agenda Paper 6: Appendix A OFFICIAL - PUBLIC

Dr Andreas Barckow Chair International Accounting Standards Board Columbus Building 7 Westferry Circus Canary Wharf London E14 4HD

[Date]

Dear Dr Barckow

Invitation to Comment: Post-implementation Review of IFRS 16 Leases

1The UK Endorsement Board (UKEB) is responsible for endorsement and adoption of IFRS Accounting Standards for use in the UK and therefore is the UK's National Standard Setter for IFRS Accounting Standards. The UKEB also leads the UK's engagement with the IFRS Foundation on the development of new standards, amendments and interpretations. This letter is intended to contribute to the Foundation's due process. The views expressed by the UKEB in this letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended international accounting standards undertaken by the UKEB.

2There are currently approximately 1,500 entities with equity listed on the London Stock Exchange that prepare their financial statements in accordance with IFRS.⁴ In addition, UK law allows unlisted companies the option to use IFRS and approximately 14,000 such companies currently take up this option.⁵

3The UKEB welcomes the opportunity to provide comments on the International Accounting Standards Board (IASB)'s Post-implementation Review of IFRS 16 Leases (PIR). Given that:

1. a PIR is primarily focused on assessing whether the effects of applying a standard are as intended; and,
2. the IASB has a number of active and pipeline projects in its workplan;

the UKEB's work has focused on identifying substantial and pervasive matters only.

4In developing this letter, the UKEB consulted with a range of stakeholders in the UK, including conducting a survey of preparers on the ongoing costs and benefits of applying the Standard.

5The UKEB has concluded:

1. There is general support for IFRS 16, and no fatal flaws have been identified.
2. The quality and comparability of financial information about leases is largely as expected. IFRS 16 disclosures are more useful than those previously reported under IAS 17.
3. The ongoing costs of applying IFRS 16 appear to remain high. However, this was identified as a probable outcome in the IASB's Effects Analysis for IFRS 16.
4. Consistent with the UKEB's response to the IASB's Post-implementation Review of IFRS 15 Revenue from Contracts with Customers we have not been made aware of any significant issues relating to the interaction between IFRS 15 and the requirements of IFRS 16 Leases.

6If you have any questions about this response, please contact the UKEB project team at [email protected].

Yours sincerely

Paul Lee Chair UK Endorsement Board

Appendix A: Questions on Request for Information: Post-implementation Review IFRS 16 Leases

Overall assessment of IFRS 16

Question 1–Overall assessment of IFRS 16

1. In your view, is IFRS 16 meeting its objective and are its core principles clear? If not, please explain why not.
2. In your view, are the overall improvements to the quality and comparability of financial information about leases largely as the IASB expected? If your view is that the overall improvements are significantly lower than expected, please explain why.
3. In your view, are the overall ongoing costs of applying the requirements and auditing and enforcing their application largely as the IASB expected? If your view is that the overall ongoing costs are significantly higher than expected, please explain why, how you would propose the IASB reduce these costs and how your proposals would affect the benefits of IFRS 16.

Objectives

A1The UKEB considers that the Standard is meeting its objective and that the core principles are clear. We have not been made aware of any fatal flaws in IFRS 16.

Improvements

A2The UKEB considers that the quality and comparability of the financial information about leases have been improved, and those overall improvements are not significantly lower than expected.

A3While some users have suggested that they are recasting IFRS 16 disclosures back to IAS 17 numbers, the UKEB's Investor Advisory Group believes this effect is most likely transitory – mainly arising from long-dated leases and analysts' need for longer term trend data.

Ongoing Costs

A4The UKEB acknowledges that the ongoing costs of applying IFRS 16 appear to remain high. However, this is not wholly unexpected considering the IASB's Effects Analysis for IFRS 16 anticipated that there would be additional costs related to⁶:

1. Determining discount rates;
2. Initial direct costs; and,
3. Remeasurement of lease assets and lease liabilities.

A5Outreach with our stakeholders suggested that there may be opportunities for mitigating some of these ongoing costs by considering simplification of some of the requirements in IFRS 16. The main drivers of the ongoing costs of applying IFRS 16 they highlighted are:

1. remeasurement of lease assets and lease liabilities;
2. collecting information for disclosures; and
3. determining the appropriate discount rate.

A6Stakeholders also identified the short-term lease and low-cost exemptions as being less helpful than expected. They noted:

1. The definition of short-term lease in IFRS 16 Appendix A Defined Terms creates a "brightline” of “12 months or less". They suggest this may be too restrictive in some circumstances.
2. The guidance in IFRS 16 BC100, with the “US$5,000” is often treated as a "brightline" which then requires recognition of otherwise immaterial leases.

A7The UKEB has not had the opportunity to undertake the detailed research required to identify specific solutions at this time. However, the IASB could explore:

1. Simplifying the discount rate requirements. For example, allowing a lessee to use its obtainable borrowing rate as an alternative to the lessee's incremental borrowing rate.
2. Removing or amending the perceived “rule-based” low-value and short-term exemptions to support a more principle-based application of materiality to accounting for lease arrangements.

Usefulness of information resulting from lessees' application of judgement

Question 2–Usefulness of information resulting from lessees' application of judgement

1. Do you agree that the usefulness of financial information resulting from lessees' application of judgement is largely as the IASB expected? If your view is that lessees' application of judgement has a significant negative effect on the usefulness of financial information, please explain why.
2. Do you agree that the requirements in IFRS 16 provide a clear and sufficient basis for entities to make appropriate judgements and that the requirements can be applied consistently? If not, please explain why not.
3. If your view is that the IASB should improve the usefulness of financial information resulting from lessees' application of judgement, please explain:
   1. what amendments you propose the IASB make to the requirements (and how the benefits of the solution would outweigh the costs); or
   2. what additional information about lessees' application of judgement you propose the IASB require entities to disclose (and how the benefits would outweigh the costs).

A8The UKEB considers that financial information resulting from lessees' application of judgement contributes to enhanced comparability as it allows an entity to present its assessment of the facts and circumstances.

Usefulness of information about lessees' lease-related cash flows

Question 3–Usefulness of information about lessees' lease-related cash flows

1. Do you agree that the improvements to the quality and comparability of financial information about lease-related cash flows that lessees present and disclose are largely as the IASB expected? If your view is that the improvements are significantly lower than expected, please explain why.

A9The UKEB considers that lease-related cash flows should be addressed as part of the Statement of Cash Flows and Related matters project currently being undertaken by the IASB.

Ongoing costs for lessees of applying the measurement requirements

A10UKEB research related to the project on Cash Flows and Related Matters has indicated that stakeholders want better information on cash flows related to leases. Current disclosures do not generally allow users to link information between the statement of financial position, the income statement and the cash flows. This is particularly relevant where there has been merger and acquisition activity.

Question 4–Ongoing costs for lessees of applying the measurement requirements

1. Do you agree that the ongoing costs of applying the measurement requirements in IFRS 16 are largely as the IASB expected? If your view is that the ongoing costs are significantly higher than expected, please explain why, considering how any entity-specific facts and circumstances (such as IT solutions) add to these costs.
2. If your view is that the ongoing costs are significantly higher than expected, please explain how you propose the IASB reduce these costs without a significant negative effect on the usefulness of financial information about leases.

A11As noted above (A4), the UKEB acknowledges that the ongoing costs of applying IFRS 16 appear to remain high. However, this is not unexpected considering the IASB's Effects Analysis for IFRS 16. There may be opportunities for mitigating some of these ongoing costs by considering simplification of some of the requirements in IFRS 16.

A12Please see response to Question 1.

Potential improvements to future transition requirement

Question 5–Potential improvements to future transition requirements

Based on your experience with the transition to IFRS 16, would you recommend the IASB does anything differently when developing transition requirements in future standard-setting projects? If so, please explain how your idea would ensure:

1. users have enough information to allow them to understand the effect of any new requirements on entities' financial performance, financial position and cash flows; and
2. preparers can appropriately reduce their transition costs when implementing new requirements for the first time.

A13The UKEB is not aware of any significant concerns with the transition requirements.

A14Preparers have indicated to the UKEB that they appreciated the practical expedient available on transition, this simplified their accounting at transition date.

A15However, it is possible that not requiring full retrospective application has contributed to some users recasting IFRS 16 disclosures back to IAS 17 numbers.

Other matters relevant to the assessment of the effects of IFRS 16

Question 6.1–Applying IFRS 16 with IFRS 9 to rent concessions

1. How often have you observed the type of rent concession described in Spotlight 6.1?
2. Have you observed diversity in how lessees account for rent concessions that has had, or that you expect to have, a material effect on the amounts reported, thereby reducing the usefulness of information?
3. If your view is that the IASB should act to improve the clarity of the requirements, please describe your proposed solution and explain how the benefits of the solution would outweigh the costs.

A16The UKEB is aware of the IFRIC suggestion and acknowledge that there could be diversity in practice. However, the UKEB has not [to date] been made aware of pervasive concerns with applying IFRS 16 with IFRS 9 to rent concessions in the UK.

Question 6.2–Applying IFRS 16 with IFRS 15 when assessing whether the transfer of an asset in a sale and leaseback transaction is a sale

1. How often have you observed difficulties in assessing whether the transfer of an asset in a sale and leaseback transaction is a sale?
2. Have you observed diversity in seller-lessees' assessments of the transfer of control that has had, or that you expect to have, a material effect on the amounts reported, thereby reducing the usefulness of information?
3. If your view is that the IASB should act to help seller-lessees determine whether the transfer of an asset is a sale, please describe your proposed solution and explain how the benefits of the solution would outweigh the costs.

A17The UKEB's view remains consistent with its response to the IASB's Post-implementation Review of IFRS 15 Revenue from Contracts with Customers (Final Comment Letter - Post-Implementation Review of IFRS 15 Revenue from Contracts with Customers), "We have been made aware of any significant issues relating to the interaction between IFRS 15 and the requirements of other IFRS, in particular IFRS 16 Leases".

Question 6.3–Applying IFRS 16 with IFRS 15 to gain or loss recognition in a sale and leaseback transaction

1. Do you agree that restricting the amount of gain (or loss) an entity recognises in a sale and leaseback transaction results in useful information?
2. What new evidence or arguments have you identified since the IASB issued IFRS 16 that would indicate that the costs of applying the partial gain or loss recognition requirements, and the usefulness of the resulting information, differ significantly from those expected?
3. If your view is that the IASB should improve the cost-benefit balance of applying the partial gain or loss recognition requirements, please describe your proposed solution.

A18The UKEB has not been made aware of any specific issues around applying the partial gain or loss recognition requirements.

Question 6.4–Other matters relevant to the assessment of the effects of IFRS 16

1. Are there any further matters the IASB should examine as part of the post-implementation review of IFRS 16? If so, please explain why, considering the objective of a post-implementation review.

A19The UKEB has not identified any other significant matters relevant to the assessment of the effects of IFRS 16.

Feedback Statement

Final Comment Letter (FCL) 25 September 2025

OFFICIAL - PUBLIC

The UK Endorsement Board (UKEB) is responsible for endorsement and adoption of IFRS for use in the UK and therefore is the UK's National Standard Setter for IFRS. The UKEB also leads the UK's engagement with the IFRS Foundation on the development of new standards, amendments and interpretations.

The comment letter to which this feedback statement relates forms part of those influencing activities and is intended to contribute to the IFRS Foundation's due process.

The views expressed by the UKEB in its comment letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended international accounting standards undertaken by the UKEB.

Purpose of this Feedback Statement

This Feedback Statement presents the views of UK stakeholders received during the UKEB's public consultation on the draft comment letter (DCL) relating to the IASBs Request for Information (RFI) for their Post-implementation Review (PIR) of IFRS 16 Leases.

This feedback statement presents the views of UK stakeholders received during the UKEB's outreach activities on the IASB's RFI and explains how the UKEB's Final Comment Letter (FCL) addressed those views.

Description of the project

• In June 2025, the IASB published the Request for Information on the PIR of IFRS 16 Leases.
• The PIR assesses whether the standard is meeting its objectives, can be applied consistently, provides useful information to users, and implementation costs are as expected. The IASB's possible actions following the PIR are to:
  • produce educational materials;
  • conduct follow-up research work for possible standard setting; or
  • take no action
• The IASB's RFI is seeking feedback on:
  • Stakeholders' experiences relating to IFRS 16 and their overall views on the Standard;
  • Matters in IFRS 16 that the IASB has identified as areas of interest to examine further in this post-implementation review;
  • Suggestions for improvements to future transition requirements; and
  • Other information relevant to the PIR of IFRS 16 not specifically addressed in the RFI, including its relationships with the requirements in other IFRS Accounting Standards.

UKEB public consultation on the DCL

• Prior to publishing the DCL, we gathered stakeholder feedback through discussions with:
  • UKEB Advisory Groups:
    • Investor Advisory Group
    • Accounting Firms and Institutes Advisory Group
    • Preparer Advisory Group
  • Preparers – through a preparer survey
• Stakeholder feedback was reflected in the DCL.
• The DCL and ITC were published for consultation for 45 days, between 25 July 2025 and 8 September 2025.
• During the consultation period the UKEB promoted awareness of the DCL and ITC and encouraged stakeholders to respond through News Alerts, LinkedIn posts, and the UKEB website.
• Two formal responses from stakeholders were received, both being preparers.
• One submission received was published on the UKEB website while the other one was not made publicly available at the stakeholder's request. However, this letter was made available to UKEB members.
• All stakeholder comments and views were considered in finalising the UKEB's FCL.

Disclaimer

This Feedback Statement has been produced in order to set out the UKEB's response to stakeholder comments received on the UKEB's draft comment letter on the IASB's Request for Information for their Post-implementation Review of IFRS 16 Leases and should not be relied upon for any other purpose.

The views expressed in this Feedback Statement are those of the UK Endorsement Board at the point of publication.

Any sentiment or opinion expressed within this Feedback Statement will not necessarily bind the conclusions, decisions, endorsement or adoption of any new or amended IFRS by the UKEB.

Contact Us

UK Endorsement Board 13th Floor | 1 Harbour Exchange | London | E14 9GE www.endorsement-board.uk

Appendix C: DRAFT Due Process Compliance Statement: Post-implementation Review of IFRS 16 Leases

The International Accounting Standards Board (IASB) published its Request for Information (RFI) for the Post-implementation Review (PIR) of IFRS 16 Leases⁸ on 17 June 2025. The IASB comment period ends on 15 October 2025.

Influencing process

Project preparation

Desk-based research

Outreach

Draft Comment Letter (DCL)

Project finalisation and project closure

Due Process Compliance Statement (DPCS)

Ongoing communications

Conclusion

This project complies with the applicable due process steps, as set out in the December 2022 Handbook.

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