IFRS 16 vs IAS 17: What Changed in Lease Accounting?

By IIC Lakshya

19 Jan 2026

ACCA

IFRS 16 vs IAS 17: What Changed in Lease Accounting?

The International Financial Reporting Standards (IFRS) are a significant practice compared to the International Accounting Standards (IAS). Here is a detailed comparison between IFRS 16 vs IAS 17 in lease accounting standards. Learn how IFRS 16 is an updated version of the IAS 17 practices, influencing financial reporting and decision-making.

What are Lease Accounting Standards?

It is through the lease Accounting Standards that companies follow regulations and Standards related to lease agreements. These standards govern organizations and firms in identifying, recognizing, measuring, and disclosing all leases in their respective financial statements.

The IAS 17 was initially considered by companies when accounting for lease agreements; however, the IFRS 16 has effectively replaced it to establish more uniformity, transparency, and accountability. You can further learn about IAS vs IFRS comparison, which will guide companies effectively. Another important global Standard used in lease accounting management is US GAAP (FASB).

Significance of Lease Accounting Standards

Lease Accounting Standards are significant in offering economic benefits to the lessee. The Standards also help in conveying the right to control any use of an identified asset. Below are some of the significant factors of these standards.

With the integration of the Lease Standards, there is uniformity in the reporting of lease transactions by companies
The Lease Standards enable all users of financial statements to understand the lease obligations and implement the rules effectively

Changes Introduced in Lease Accounting

With the implementation of IAS 17 in lease accounting, there were several leases that went off from the balance sheet. This creates a transparency issue. Introducing IFRS 16 has created a better understanding of lease accounting, a realistic representation of financial statements, and transparency for investors towards companies. Candidates can learn about the eligibility criteria for DipIFR when they are preparing for the integration of the course.

The operating finance leases were hidden in most cases when IAS 17 was followed.
It leads to balance-sheet treatment, non-transparent practices to investors, and significant liabilities for the companies.
IFRS 16 highlights all leases on the balance sheet, leading to clarity and transparency in the operations of the company.

Key Differences between IFRS 16 and IAS 17

There are some significant differences between IFRS 16 and IAS 17. The replacement of the IAS 17 by the IFRS 16 has led to better management of lease liabilities and transparency. Candidates pursuing integrated ACCA courses will learn about these professional expertise. Below are some of the key differences between the two regulations.

Key Features	IAS 17	IFRS 16
Impact on Lessees vs Lessors	Lessors fall under finance or operating leases No changes or little changes to their accounting	Lessees must classify lease liabilities and assets on the balance sheet The financial reporting is influenced heavily
Recognition on Balance Sheet	Only finance leases appear on the balance sheet, while the operating leases are overlooked	The lessees must recognize a right-to-use asset A lease liability is also needed for most leases
Expense Recognition and Measurement	On a straight-line basis, rent expense must be accounted for Payment is treated for operating leases	Costs between interest expense (lease liability) and depreciation (right-of-use asset) are split
Disclosure Requirements	Complex transparency Investors cannot get a clear understanding of lease accounting	Qualitative and quantitative disclosures for leases Investors get a better understanding of lease obligations

IFRS 16: Transition from IAS 17, Coverage & Application

IFRS 16 is a universally recognized Standard by companies that covers recognition, measurement, and disclosure related to lease accounting, both short and long term. Learn about the IFRS course & syllabus details in this transition. The Standard has replaced IAS 17 from 1st January 2019. It applies to all leases except assets of limited value and leases less than 12 months in duration.

The application of the IFRS Standard mandates is used by companies to calculate all lease obligations.
They can use the present value of future payments under leases, leading to more transparency.
IFRS 16 makes sure that all lessees must recognize the right-of-use along with the lease liability.

Financial Statements and Ratios

The significant financial metrics are impacted when IFRS 16 is implemented, as the liabilities and assets are increased. Depreciation and interest replace the lease expense with the use of IFRS 16. Candidates can also learn about what IFRS is in detail with this comparison. The way a company is leased and the type of sector it might have different influences and implications.

Impact on Stakeholders and Reporting

The debt requirements and investment of a company are reported comprehensively to the investors. A CPA certified professional will develop an understanding of auditing and balance sheets. Lenders will make decisions related to investment and the creditworthiness of the organization based on this report.

Practical Challenges during Process

There are some practical challenges with the implementation of IFRS 16 in the business processes. From the various agreements, lease data is collected; hence, the process is quite complicated and time-consuming. Staff training is also significant when implementing the standard.

Benefits of IFRS 16 compared to IAS 17

There are some significant benefits of the IFRS 16 implementation as compared to IAS 17. Of course, the IFRS 16 aspects are clear, establish regulations, and help companies navigate lease accounting in the industry. You can also read about the advantages & disadvantages of IFRS.

Greater Comparability and Transparency

IFRS 16 discloses all types of leases across the balance sheet, which offers transparency of financial statements to investors. This helps in firm comparison easier even when they have different portfolios of leases.

There are several ACCA jobs in India where professionals will develop a deeper understanding of IFRS courses. For both analysts and investors, IFRS 16 makes it easier to accurately calculate financial health.

Improved Investor Confidence

When the financial reporting becomes so precise and accurate, the disclosures by the company encourage investors to invest. Ambiguity decreases in latent liabilities effectively with proper reporting. The capital costs decrease, and the valuation increases effectively.

Refined Decision-Making

Decision-making becomes more crisp and effective as IFRS 16 helps management in making better decisions using improved lease data. Management also understand in the economic impact of obligations under the lease. Furthermore, it also supports investment, funding, and budgeting methods.

IFRS 16 is a Game Changer in Lease Accounting!

In conclusion, IFRS 16 brings fundamental changes in IAS 17 as it eliminates all off-balance-sheet leases. This leads to improved financial statements production along with the identification of lease assets and liabilities. It also helps investors to develop trust in companies and invest accordingly.

Frequently Asked Questions on IFRS 16 vs IAS 17

What are the 5 lease tests?

The following are the 5 lease tests that all accounting professionals need to be updated:

Lease purchase option
Transfer of ownership
Alternative use
Lease term
Present value

What are the 4 criteria for recognizing revenue?

The 4 criteria for recognizing revenue are as follows:

Collection is probable
Delivery has already occurred
The price can be determined
The persuasive evidence of an arrangement

What are the three main types of leases?

The three main types of leases are: Gross lease, modified gross lease, and net lease.

What is the 90% rule for operating leases?

The 90% rule for operating leases is that the present value of the lease payments must be greater than or equivalent to the 90% of the overall fair value of the asset.

Why was IAS replaced by IFRS?

IAS has been replaced by IFRS because they were inconsistent, impractical, and complex in the modern financial world. Financial institutions, regulators, and accountants found the IAS quite confusing; hence, IFRS Standards are more effective, stable, and integrate accurate financial standards and practices.