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12/10/2016 - EFRAG requests comments on its Preliminary Consultation Document regarding the endorsement of IFRS 16 Leases

​EFRAG has issued a Preliminary Consultation Document relating to the endorsement for use in the EU of IFRS 16 Leases. EFRAG is seeking the views of constituents, by 8 December 2016, on the specific matters raised in this document and any other issues considered relevant to EFRAG's endorsement advice.

IFRS 16 replaces IAS 17 Leases and associated interpretations. IFRS 16 eliminates the classification of leases as either finance or operating for lessees and requires lessees to recognise assets and liabilities for all leases, with some optional exemptions. It substantially retains the lessor accounting from IAS 17.

IFRS 16 will become effective for annual periods beginning on or after 1 January 2019, with earlier application permitted under certain conditions.

EFRAG's overall preliminary assessment is that IFRS 16:

  • meets the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, and raises no issues regarding prudent accounting (Appendix 2);
  • is not contrary to the true and fair view principle (Appendix 2);
  • would improve financial reporting, compared to the standard and the interpretations it replaces (Appendix 3); and
  • would not put European entities at a competitive disadvantage taking into account the lack of convergence with the equivalent US GAAP Standard (Appendix 3).

EFRAG has also prepared a preliminary assessment of the cost and benefits expected to arise from the application of IFRS 16 (Appendix 3). However, EFRAG has not yet assessed whether it would reach an acceptable cost-benefit trade-off.

During the consultation period, EFRAG will be conducting additional work on a number of topics:

  • additional research on the impact of IFRS 16 on SMEs;
  • additional outreach with users of financial statements; and
  • obtain evidence and input from an economic study it has commissioned on the effect analysis of IFRS 16. 

EFRAG is expecting significant additional input into its assessment from this additional work and has not yet reached a preliminary conclusion as to whether IFRS 16 is conducive to European Public Good.

EFRAG nonetheless encourages constituents to provide views on any matters that may be relevant to its endorsement advice. Some specific matters on which EFRAG is seeking input are highlighted in questions set out within this Preliminary Consultation Document which can be found here.

The following information is provided, on EFRAG's public website, to supplement this Preliminary Consultation Document:

  • The European Commission's request for advice on the endorsement of IFRS 16 (here); .
  • EFRAG Secretariat paper IFRS 16 Leases - Quantitative assessment of Accounting Impacts (here); and
  • EFRAG Secretariat paper IFRS 16 Leases Fieldwork on the definition of a lease (here)

Comments are requested by 8 December 2016. You can comment on EFRAG's Preliminary Consultation Document by clicking on the 'Comment publication' link below.

EFRAG has also updated its Endorsement Status Report, which can be downloaded here.