IFRS 16 — Leases is the IFRS standard governing the recognition, measurement, presentation, and disclosure of leases. It has been effective for annual reporting periods beginning on or after 1 January 2019. IFRS 16 eliminated the distinction between operating leases (previously off-balance-sheet for lessees) and finance leases (previously on-balance-sheet) and required lessees to bring virtually all leases onto the balance sheet — recognising a right-of-use (ROU) asset representing the right to use the leased asset, and a corresponding lease liability representing the obligation to make future lease payments.
The practitioner distinction: the income statement impact of IFRS 16 is counterintuitive. Under the previous standard, operating lease payments were expensed as incurred — a single operating cost line. Under IFRS 16, the same payments are replaced by a depreciation charge on the ROU asset (within operating expenses) and an interest charge on the lease liability (within finance costs). The total cash outflow is identical. But the income statement presentation changes in a way that increases EBITDA — because the operating lease payment, previously reducing EBITDA, has been replaced by depreciation and interest, both of which are added back in the EBITDA calculation.
In the Context of the GCC
IFRS 16 has had a significant impact on GCC enterprises with large real estate, retail, and vehicle lease portfolios. Saudi retailers operating under long-term mall lease agreements, UAE banks with extensive branch networks on operating leases, and logistics companies with large vehicle fleets previously accounted for as operating leases have all seen material increases in reported assets and liabilities at transition. The leverage ratios and debt covenants of GCC businesses with significant lease portfolios were affected — and in some cases required covenant renegotiation with lenders who had not anticipated the balance sheet impact of the standard.
How This Connects to EPM
IFRS 16 lease modelling is a specific requirement in any EPM balance sheet and income statement plan. The lease liability amortisation schedule — showing the opening lease liability, the interest charge, the lease payments, and the closing liability for each period — must be built into the EPM model alongside the ROU asset depreciation schedule. Where lease portfolios are large and diverse, Oracle EPM lease management modules or complementary lease accounting tools provide the calculation infrastructure; the EPM then consumes the output for planning and consolidation. An EPM plan built without IFRS 16 modelling will understate balance sheet liabilities, overstate EBITDA relative to cash generation, and produce income statements that do not match the statutory IFRS 16 presentation.
What Goes Wrong
The failure that persists in many GCC finance functions five years after IFRS 16 adoption is the absence of a current lease register. IFRS 16 requires that the lease liability be remeasured whenever the lease term is reassessed, when variable lease payments change, or when the lease is modified. Enterprises that built their IFRS 16 model at transition and have not maintained the underlying lease register have liabilities and ROU assets that no longer reflect the actual lease portfolio — contracts that have been renewed, extended, or terminated without the IFRS 16 model being updated. The cumulative error in the balance sheet grows with each unmaintained contract event.
How Loop Wise Solutions Encounters This
In EPM and finance advisory engagements, IFRS 16 lease register review is a standard scope item where the client has a material lease portfolio. We assess the currency and completeness of the lease register, identify contract events that have not been reflected in the IFRS 16 calculations, and rebuild the lease liability and ROU asset schedules from the current lease inventory. The output feeds directly into the EPM balance sheet and income statement planning model.
