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Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality :Many lessees expressed concerns about the costs of applying the requirements in  IFRS 16 to leases that are large in number but low in value, particularly when the aggregate value of those leases would have little effect on the financial statements as a whole. These lessees thought that applying the requirements of IFRS 16 to those leases would involve a significant amount of time and effort without a corresponding benefit in terms of the effect on reported information.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality : In the light of these concerns, the IASB considered including explicit guidance on materiality within IFRS 16—either an explicit reminder that immaterial leases are excluded from the scope of IFRS 16 or by providing clarity about how the concept of materiality in the Conceptual Framework and in IAS 1 Presentation of Financial Statements applies to leases. The IASB observed that the concept of materiality applies to leases, however, other Standards do not provide materiality guidance about particular transactions and events. The IASB also noted that applying materiality considerations to the requirements in IFRS 16 is no different from applying those considerations to the requirements of other Standards. Accordingly, the IASB decided not to provide specific guidance on materiality within IFRS 16. The IASB concluded that it would be appropriate, and consistent with other Standards, to rely on the materiality guidance in the Conceptual Framework and in IAS 1. Nonetheless, IFRS 16 includes some recognition exemptions as described.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality : In making this decision not to include materiality guidance in IFRS 16, the IASB noted that a lessee would not be required to apply the recognition and measurement requirements in IFRS 16 if the effect of doing so would not be material to its financial statements. Similarly, if a lessee’s leasing activities are
material to its financial statements, but the effect of measuring lease liabilities on a discounted basis is not material, the lessee would not be required to measure its lease liabilities on a discounted basis and could instead, for example, measure them on an undiscounted basis.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality : The 2010 and 2013 Exposure Drafts would not have precluded an entity from applying the leases requirements at a portfolio level. However, many entities noted that the 2011 Exposure Draft Revenue from Contracts with Customers proposed guidance on applying its requirements at a portfolio level (which has subsequently been confirmed in IFRS 15). These stakeholders asked whether the absence of guidance on this subject meant that an entity would not be permitted to apply IFRS 16 at a portfolio level.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality : In response to these concerns, the IASB decided to add application guidance on portfolios to IFRS 16. The guidance clarifies that an entity is permitted to apply the requirements in IFRS 16 to a portfolio of leases with similar characteristics, if the entity reasonably expects that the effects on the financial statements of applying IFRS 16 to the portfolio would not differ materially from applyingIFRS 16 to the individual leases within that portfolio. This approach may be particularly useful for lessees with a large number of similar leases.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality :  The IASB decided that the scope of IFRS 16 should be based on the scope of the leases requirements in IAS 17. IAS 17 applies to all leases, with specified exceptions.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality : Accordingly, IFRS 16 contains scope exceptions for:
(a) leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources. IFRS 6 Exploration for and Evaluation of Mineral Resources specifies the accounting for rights to explore for and evaluate mineral resources.
(b) leases of biological assets within the scope of IAS 41 Agriculture held by a lessee. IAS 41 specifies the accounting for biological assets, other than bearer plants, which are within the scope of IAS 16. Consequently, leases of bearer plants such as orchards and vineyards held by a lessee are within the scope of IFRS 16.
(c) service concession arrangements within the scope of IFRIC 12 Service Concession Arrangements (see paragraph BC69).
(d) licences of intellectual property granted by a lessor within the scope of IFRS 15. There are specific requirements relating to those licences within IFRS 15.
(e) leases of intangible assets held by a lessee

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality : The IASB decided to exclude from the scope of IFRS 16 service concession arrangements within the scope of IFRIC 12. Consistently with the conclusions in IFRIC 12, any arrangement within its scope does not meet the definition of a lease. This is because the operator in a service concession arrangement does not have the right to control the use of the underlying asset. For this reason, the IASB considered whether it was necessary to explicitly exclude from the scope of IFRS 16 service concession arrangements within the scope of IFRIC 12. However, such a scope exclusion had been included in IFRIC 4 Determining whether an Arrangement contains a Lease, and stakeholders informed the IASB that including a scope exclusion for service concession arrangements in IFRS 16 would provide clarity in this respect.

Basis For Conclusions On IFRS 16 Materiality

Basis For Conclusions On IFRS 16 Materiality :  IFRS 16 excludes from its scope rights held by a lessee under licensing agreements within the scope of IAS 38 Intangible Assets for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights. This is because these licensing agreements are accounted for applying IAS 38.

Basis For Conclusions On IFRS 16 Materiality

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