Summary (30 seconds):
IFRS 16 requires lease schedule updates on modification or on certain indexation changes. In the rapidly rising interest rate environment of 2022–2024, many companies with WIBOR- or CPI-linked leases have incorrect schedules — the lease liability has not been remeasured to current cash flows. This is an area where auditors always ask questions and check documentation.
IFRS 16 requires lease schedule updates on modification or on certain indexation changes. In the rapidly rising interest rate environment of 2022–2024, many companies with WIBOR- or CPI-linked leases have incorrect schedules — the lease liability has not been remeasured to current cash flows. This is an area where auditors always ask questions and check documentation.
When you must update the IFRS 16 schedule
| Event | Update required? | New discount rate? |
|---|---|---|
| Change in lease term (extension or reduction) | ✅ Yes — modification | ✅ Yes — rate at modification date |
| Change in scope (adding/removing assets) | ✅ Yes — modification | ✅ Yes — rate at modification date |
| Change in fixed lease payment | ✅ Yes — modification | ✅ Yes — rate at modification date |
| CPI/inflation indexation — payment update | ✅ Yes — remeasurement (not modification) | ✅ Yes — incremental borrowing rate at update date |
| Variable payment based on WIBOR/EURIBOR — change | ✅ Yes — remeasurement at each change | ✅ Yes — rate update |
| Service charges, insurance — change | ❌ No — not a lease component under IFRS 16 | — |
How modification works under IFRS 16
On a lease modification (a change in scope or consideration not included in the original terms):
- If the change increases scope and consideration at market rates → accounted for as a new separate lease
- In all other cases → remeasurement: recalculate the lease liability discounted at the new rate, adjust the right-of-use asset
Important: The new discount rate on remeasurement is the lessee's incremental borrowing rate at the date of the change — the rate at which the company could take on a similar obligation for a similar asset on the same day. With WIBOR rising from 0.1% (2021) to 7%+ (2022/2023) the valuation difference is very material.
The high interest rate problem 2022–2025
Companies that entered into lease agreements at near-zero rates (2020–2021) and have variable-rate or CPI-indexed leases should have updated their schedules at every rate change. In practice, many companies "forgot" to update in 2022 and 2023 when WIBOR jumped by several percentage points.
Result: the lease liability is overstated (still discounted at the old low rate), and the right-of-use asset does not reflect current value. This is an error and auditors find it when comparing the schedule with current contract terms.
From my practice: In audits for 2023–2024 the most common finding in the lease area was IFRS 16 schedules prepared at 2021 rates and never updated despite several contract renegotiations. The company had updated contract terms but an old Excel schedule. The difference in liability valuation was in the double-digit percentage range.
Most common errors in lease accounting
- Stale discount rates — a schedule from 2021 using a 1% rate, even though the renegotiation took place when the rate was 6.5%.
- Classifying a modification as a non-modification — the company treats an addendum as "not a modification", when in fact it changed the term or payment rate.
- No documentation of the incremental borrowing rate — on remeasurement the company does not document the source of the new discount rate. Auditors always ask about this.
- Excluding contracts from IFRS 16 that should be inside — contracts labelled "service agreements" but actually containing a lease component (a separately identified asset for a specified period).
FAQ
Frequently asked questions
How do I determine the incremental borrowing rate on remeasurement?▾
The rate should reflect the terms on which the company could take on a liability of similar maturity for a similar asset at the date of remeasurement. In practice: the company's bank credit rate for a similar term, or WIBOR plus the bank's current margin. Document the method and inputs.
Is an error in the IFRS 16 schedule a material error?▾
Depends on the amount. For companies with a large lease portfolio (real estate, fleet, machinery) the error may be material. With a small portfolio — usually immaterial, but requires disclosure as an error or prospective correction.
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