EFRAG Releases Final Comment Letter on IASB’s Post-Implementation Review of IFRS 16 Leases
EFRAG has issued its Final Comment Letter ('FCL') in response to the IASB's Request for Information ('RFI') IASB/RFI/2025/1 on the Post-implementation Review ('PIR') of IFRS 16 Leases (‘IFRS 16’ or ‘the Standard’).
In the FCL response, EFRAG notes that the Standard is generally working well – especially for straightforward lease agreements - and has largely met its objective of improving lease-related financial reporting. EFRAG´s constituents appreciated the increased transparency and comparability brought about by the requirement for lessees to recognise most leases on the balance sheet. While preparers faced significant implementation costs - and ongoing costs remain high, particularly for lease-intensive industries – they reported tangible benefits, including stronger internal controls, better lease monitoring, and improved data quality.
However, EFRAG flags potential areas for targeted improvements of the Standard. It raises conceptual issues regarding the presentation and disclosure of cash flow information. EFRAG also highlights application issues regarding whether some contracts fall within the scope of IFRS 16, particularly in relation to certain intangible assets such as software licences and cloud computing services, as well as the complexity of distinguishing between a lease and an in-substance purchase. Lastly, EFRAG points to inconsistencies in the interactions between IFRS 16 and other IFRS accounting standards, specifically when distinguishing lease modifications under IFRS 16 from liability extinguishments under IFRS 9 Financial Instruments, and in relation to the treatment of sales and leaseback transactions under IFRS 15 Revenue from Contracts with Customers.
EFRAG has made suggestions for the IASB to address the above issues, including through clarifying guidance and additional illustrative examples. Moreover, EFRAG also notes that users expressed concern that disclosures are sometimes insufficient, especially where judgment plays a significant role.