Explore how IFRS 16 reshapes lease accounting across key industries, and why an expert-built lease management platform is vital for audit-ready reporting.
The introduction of IFRS 16 has fundamentally reshaped how businesses account for leases. Aviation businesses rely heavily on aircraft leasing, so the evolution of lease accounting has been a focal point for these organisations. The ripple effects of IFRS 16 extend far beyond the runway.
The transport and logistics, telecommunications, and retail sectors are all grappling with the operational and financial complexities introduced by the standard. A recent PwC report on IFRS 16’s impact on aviation highlights the scale of change: from balance sheet expansion to sale and leaseback reclassification. These challenges are emblematic of a broader shift that demands a clear strategy, starting with a robust, expert-built lease management platform.
Read on to explore how IFRS 16 is reshaping these industries and why a dedicated solution is no longer optional.
Aviation companies were among the first to feel the full weight of IFRS 16. Aircraft leases are complex, often involving variable payments, extension options, and service obligations. The report from PwC outlines several key impacts:
Balance sheet impact
Capitalising leases significantly increases both assets and liabilities even though lease volumes are relatively low, distorting traditional financial ratios like debt-to-equity.
Lease term and discount rate
Determining lease terms requires forward-looking assessments of options and variable payments. A clear picture of your financial obligations at every stage is imperative to your forecasting so you're never in the dark.
Operational and financial reporting
Compliance with the IFRS 16 standard demands systems and processes that accurately capture constantly changing lease data and generate audit-ready reports. Without the right platform, finance teams are prone to wasting valuable time manually handling, analysing, and reporting on large datasets. You can achieve better ROI with a purpose-built, integrated platform.
Combined, these challenges have made the aviation industry a case study in why manual lease tracking and fragmented systems are no longer viable.
The aviation industry faces unique challenges in complying with the IFRS 16 standard. A purpose-built lease management platform
like LOIS unlocks strategic insights and keeps auditors happy.
Transport and logistics companies lease everything from trucks and containers to warehouses and ports. The introduction of IFRS 16 has significantly changed lease management and reporting requirements for these businesses.
Balance sheet impact
Fleet and facility leases appear on the balance sheet, inflating both assets and liabilities. This change is also vastly different in agreement terms and materiality. This affects key financial metrics such as return on assets, EBITDA, and leverage ratios, which are critical for lenders and investors.
Lease term and discount rate
Leases often include seasonal adjustments, fleet flexibility, and renewal options. Estimating lease terms and discount rates requires granular data and scenario modelling. Regular spreadsheets may struggle to handle these models, and requires more input from the user to ensure fully accurate data.
Operational and financial reporting
Lease data is scattered across departments, from fleet management to procurement to finance. Without a centralised platform, ensuring accuracy and audit-readiness becomes a costly and error-prone exercise for transport and logistics businesses.
Telcos are among the most intricate users of lease arrangements, with leases for these businesses ranging from towers, data centres, and retail outlets to office space for corporate teams. What's more, these leases are often very long-term, multi-party agreements, especially for towers.
Balance sheet impact
Capitalising these leases inflates the balance sheet and alters key metrics like net debt, EBITDA margins, and asset turnover. Ensuring accurate reporting is critical to staying audit-ready in the complex compliance landscape, and can affect investor sentiment.
Lease term and discount rate
Leases may include usage-based payments, strategic renewal options, and cross-border complexities. Estimating terms and rates requires deep integration with network planning and finance, and a spreadsheet simply doesn't cut it anymore.
Operational and financial reporting
IFRS 16 compliance demands coordination across real estate, third-party service providers, network operations, and finance. Without a unified platform, telcos risk inconsistent reporting and audit delays, plus businesses miss out on the strategic insights that a future-ready platform can offer.
Sale and leaseback arrangements
Tower sales and leasebacks are common liquidity strategies. Under IFRS 16 and IFRS15, these must be carefully assessed to determine if a sale has occurred, impacting future lease expense profiles and capital structure.
Major retailers often manage hundreds or thousands of leases across geographies, making IFRS 16 compliance particularly challenging due to the total volumes involved.
Balance sheet impact
Storefront and warehouse leases now appear on the balance sheet, affecting store profitability, lease-adjusted leverage, and EBITDA which are all key metrics for stakeholders.
Lease term and discount rate
Retail leases can include break clauses, turnover-based rent, and renewal options. Estimating property-specific lease impacts requires forecasting store performance and market conditions.
Operational and financial reporting
Lease data is often siloed between real estate, third-party providers, store operations, and finance. A centralised lease management platform is essential to ensure consistency and optimised event management for commercial terms.
Sale and leaseback arrangements
When retailers sell and lease back flagship stores or distribution centres, these transactions must be assessed under IFRS 15 before derecognition, impacting cash flow and asset utilisation.
Retail leases can be complex. Accounting for the intricate details and forecasts requires an integrated platform.
Across all these industries, the message is clear: IFRS 16 is not just an accounting change - it’s a business transformation. A dedicated lease management platform is critical for these reasons:
1. Centralised data management
Lease data often resides in contracts, spreadsheets, and disparate systems. A centralised platform ensures all data is captured, standardised, and accessible, reducing errors and improving transparency across business functions.
2. Accurate calculations and reporting
IFRS 16 requires complex calculations for lease liability, right-of-use assets, depreciation, and interest. A purpose-built platform automates these processes, ensuring accuracy and audit-readiness.
3. Scenario modelling and forecasting
Businesses need to model lease scenarios like renewals, terminations, and sale and leasebacks to fully understand future financial impacts. A robust platform enables dynamic modelling and strategic decision-making.
4. Cross-functional collaboration
Lease management touches finance, property, procurement, operations, and legal. A unified system fosters collaboration and ensures everyone is working from the same dataset at all times as changes occur.
5. Audit and compliance assurance
With regulators and auditors scrutinising lease accounting, businesses must be able to produce compliant, traceable, and defensible reports. A dedicated platform provides the required audit trail and controls.
6. Complex event management
Many tools simply do compliance or payments, but there is a very real need for a complex event management system that covers operational efficiency as well as strong commercial outcomes around contractual clauses and notices.
IFRS 16 has raised the bar for lease accounting across industries. Whether you're managing aircraft, trucks, towers, or storefronts, the complexity of lease data and reporting demands more than spreadsheets and manual processes.
A purpose-built lease management platform like LOIS transforms IFRS 16 from a compliance burden into a strategic advantage, enabling better decision-making, stronger governance, and improved financial performance. The right platform can empower businesses to not only meet IFRS 16 requirements but to thrive in a lease-intensive environment.
The time to act is now. Find out more about LOIS here.
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