BDO Releases IFRB 2019/04 - IFRIC Issues Final Agenda Decision for an Assessment of the Lease Term (IFRS 16)

BDO has released a new IFRB Bulletin on the impact of a final agenda decision arising from the November 2019 meeting of the IFRS Interpretations Committee ('the Committee'). At the November meeting, the Committee concluded that in determining the enforceable period of a lease, entities must consider the broader economics of an arrangement and not only contractual 'penalties'.

This decision may have broad reaching effects for entities, particularly for lessees with 'month to month' or related party leases where there is not a defined contractual end date. It may also affect the assessment of the lease term when entities have significant leasehold improvements installed in leased space, since the agenda decision clarifies that these types of potential economic penalties (i.e. abandoning leasehold improvements) may affect the assessment of the lease term.

For more information and illustrative examples of the impact of this agenda decision, BDO's IFR Bulletin may be accessed here.