TIAG perspectives on lease term under IFRS 16
Telecommunication companies enter into a wide variety of lease arrangements. These can range from co-location (mast and site sharing) and capacity (network sharing) arrangements to leases of fleet and warehousing solutions.
IFRS 16, ‘Leases’, defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. At first sight, the definition looks straightforward. But, in practice, it can be challenging to assess the various parts of this definition. In particular, the determination of the lease term can be a significant judgement in applying IFRS 16. This is because it affects the amount recorded for the entity’s lease obligation and related right-of-use asset – the longer the lease term, the larger the lease liability and related right-of-use asset.
This publication focuses on the practical challenges and considerations in determining the lease term under IFRS 16. For simplicity, the illustrative examples all assume that the arrangements contain a lease.