Within the lessee accounting model under IFRS 16, there is no longer a classification distinction between operating and finance leases. Rather, now a single model approach exists whereby all lessee leases post-adoption are reported as finance leases. These leases are capitalized and presented on the balance sheet as both assets, known as the right-of-use (ROU) asset, and liabilities, unless subject to any of the exemptions prescribed by the standard.
Similar to finance lease accounting under IAS 17, the accounting treatment for finance leases under IFRS 16 results in the recognition of both depreciation and interest expense on the income statement. For those entities dually reporting under both IFRS 16 and ASC 842, you will notice that the accounting for finance leases under IFRS 16 resembles the accounting for finance leases under ASC 842. However, ASC 842 still retains the operating lease classification.
Under IFRS 16, a lease is defined as a contract granting an entity the right to utilize a specific asset for a prescribed period of time in exchange for agreed-upon consideration. To determine whether a contract grants control of the asset to the lessee, the agreement must provide the following to the lessee: