• Courses
    • All Courses
    • CFA® Courses
      • CFA® Overview
      • CFA® Program Level I
      • CFA® Program Level II
      • CFA® Program Level III
      • Exam Support
      • Free Resources
      • CFA Institute Private Markets and Alternative Investments Certificate
      • CFA Institute Climate Risk, Valuation, and Investing Certificate
    • IMC Courses
      • IMC Unit 1
      • IMC Unit 2
      • Exam Support
      • Free Resources
    • ESG & Sustainability Courses
      • Introduction to Sustainable Investing
      • CFA Institute Sustainable Investing Certificate
      • CFA UK Certificate in Climate & investing
      • CFA UK Certificate in Impact Investing
      • Exam Support
      • Free Resources
    • Short Courses
      • CPD & Finance Short Courses
      • Introduction to accounting
      • Essential Financial Maths
      • Financial Modelling
  • About Quartic
  • Blog & Insights
  • Contact Us
  • My account
  • Delegate Login
  • Courses
    • All Courses
    • CFA® Courses
      • CFA® Overview
      • CFA® Program Level I
      • CFA® Program Level II
      • CFA® Program Level III
      • Exam Support
      • Free Resources
      • CFA Institute Private Markets and Alternative Investments Certificate
      • CFA Institute Climate Risk, Valuation, and Investing Certificate
    • IMC Courses
      • IMC Unit 1
      • IMC Unit 2
      • Exam Support
      • Free Resources
    • ESG & Sustainability Courses
      • Introduction to Sustainable Investing
      • CFA Institute Sustainable Investing Certificate
      • CFA UK Certificate in Climate & investing
      • CFA UK Certificate in Impact Investing
      • Exam Support
      • Free Resources
    • Short Courses
      • CPD & Finance Short Courses
      • Introduction to accounting
      • Essential Financial Maths
      • Financial Modelling
  • About Quartic
  • Blog & Insights
  • Contact Us
  • My account
  • Delegate Login
  • Search
  • Courses
    View All Courses

    CFA® Courses

    • CFA®Level I
    • CFA® Level II
    • CFA® Level III
    • Exam Support
    • Free Resources
    • PMAIC (Private Markets)
    • CRVIC (Climate Risk)

    IMC Courses

    • IMC Unit 1
    • IMC Unit 2
    • Exam Support
    • Free Resources

    ESG & Sustainability Courses

    • Introduction to Sustainable Investing
    • CFA Institute Sustainable Investing Certificate
    • CFA UK Certificate in Climate & Investing
    • CFA UK Certificate in Impact Investing
    • Exam Support
    • Free Resources

    Short Courses

    • CPD & Finance Short Courses
    • Introduction to Accounting
    • Essential Financial Maths
    • Financial Modelling
  • About Quartic
    • About Quartic
    • What We Do
    • Meet The Team
    • What Our Clients Say
  • Blog & Insights
  • FAQs
  • Contact Us
  • Delegate Login
Delegate Login
£0.00 0 Basket
  • Flexible Online Learning
  • Inspirational Study Materials
  • Personalised Support
  • Flexible Online Learning
  • Inspirational Study Materials
  • Personalised Support

Our Summer Sale is now on! Enjoy 30% off all Core & Premier packages. Use code: QSUMMER30. Hurry offer ends 14 July 2025. T&Cs apply.

Blog & Insights

IFRS 16 – Leases update

  • Written by Quartic
  • Blog
  • 14 August 2018

by Dianne Ramdeen

The International Accounting Standards Board (IASB) has published a new standard on leases, IFRS 16, which will be effective for reporting periods beginning on or after 1 January 2019.  This new standard replaces the previous standard IAS 17.

Background to leases

Under current accounting rules when a company leases an asset, the lease can be classified as either an operating lease or a finance lease.  An operating lease is often referred to as off-balance-sheet because the asset does not appear on the company’s books.  Instead, the lease payments are expensed in the income statement and the lease is disclosed in the notes to the accounts.  Finance leases, however, appear on the company’s balance sheet in the form of a lease asset and a lease liability. The asset is depreciated and interest on the lease liability is charged to the income statement instead of the lease payment. This treatment captures the true substance of the leasing arrangement i.e. the lessor providing long term finance to the lessee.

Analysts use the notes to the accounts to make adjustments for operating leases so as to ascertain the company’s lease commitments that, in essence, represent long term liabilities (debt).  British Airways, for example, has operating leases with terms of up to 12 years for aircraft and 128 years for ground leases; although not on the balance sheet, the substance is a long term financial commitment.

One of the driving forces behind IFRS 16 was that the IASB felt that disclosure of operating leases was not sufficient to allow a transparent view of the leased assets that a company controlled and the lease payments that it could not avoid.

New single lessee accounting model

IFRS 16 significantly changes the manner in which leases are accounted for as it introduces a single lessee accounting model where almost all leases will be treated as finance leases.  Exceptions include leases with a term of one year or less and low value assets such as office equipment and computers.

Implications for financial analysis

For companies with significant operating leases, IFRS 16 will result in an increase in assets as off-balance-sheet leases are brought onto the books and an increase in liabilities as lease commitments are recognised.  Asset turnover will therefore decrease, and financial gearing will increase.  In addition, measures such as EBITDA will improve as operating lease payments will no longer feature as an operating expense. Operating cash flow will also appear healthier under IFRS 16 because the entire lease payment will no longer be deducted as an operating cash flow. Instead, part of the lease payment will appear in the financing section of the cash flow statement.

The IASB has indicated that companies within the airline, retail and travel and leisure industries are likely to be affected the most as they have a significant amount of off-balance-sheet operating leases – close to 30% of assets. The accounting by lessors, however, remains largely unchanged.

For Any Queries, Please Get In Touch

Get In Touch

More Insights

CFA Result – Not What You’d Hoped For

AI meets ESG. Closing Bell for Analysts?

CFA Institute Sustainable Investing Certificate

The CFA Program: Chart Your Success Story.

Need to discuss your training needs?

Interested in learning about course pricing or curious about group discounts? Please provide details of your inquiry, such as the specific course or course type, pricing request, etc. Our dedicated team will be happy to assist.

Copyright ©2025 Quartic Training Limited. CFA Institute does not endorse or warrant the accuracy or quality of the products or services offered by Quartic Training Limited. CFA Institute, CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

  • [email protected]
  • +44 20 7776 7500
Facebook-f Linkedin-in Youtube Instagram
  • Newsletter
  • FAQs
  • Contact Us
  • Privacy Policy
  • Code of Ethics
  • Cookie Policy
  • Terms and Conditions
  • Newsletter
  • FAQs
  • Contact Us
  • Privacy Policy
  • Code of Ethics
  • Cookie Policy
  • Terms and Conditions
View basket Checkout Continue Shopping
Newsletter Sign Up

Sign up to be kept up-to-date with the latest news and offers from Quartic.