What is IFRS 16: Leases?
IFRS 16 is the international accounting standard for leases that requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for most leases, replacing the previous operating-lease off-balance-sheet treatment.
How It Works
- Identify a lease and its term.
- Recognize a right-of-use asset and a lease liability at lease commencement.
- Depreciate the asset and unwind the liability over the lease term.
Saudi Context
Saudi retailers, logistics firms, and listed corporates booked sizeable right-of-use assets when IFRS 16 took effect in 2019, materially increasing reported assets and EBITDA on Tadawul filings.
Example
A Saudi retailer with 30 leased stores recognizes a SAR 200 million right-of-use asset and matching lease liability on adoption of IFRS 16.