Overview
IFRS 16 disclosures are the note and presentation requirements that show how leasing affects an entity's financial position, performance and cash flows. They extend well beyond the balance sheet, to depreciation, interest, short-term and low-value lease expense, variable payments, a maturity analysis, and qualitative information about leasing activities.
What matters is whether a reader can actually understand the entity's leasing exposure, not just whether every line item has been ticked off. Most entities bring everything together in a single leases note: right-of-use assets and lease liabilities, amounts recognised in profit or loss and cash flow, the maturity analysis, and other qualitative disclosures.
This article forms part of our full IFRS 16 guide.
Materiality Still Applies
The disclosure requirements in IFRS 16 are a minimum, not a template to replicate mechanically. Immaterial line items can be aggregated or omitted, provided the note still gives readers a clear picture of leasing exposure.
Presentation on the Face of the Primary Statements
Before the note disclosures, IFRS 16 also sets requirements for presenting leases on the face of the primary statements.
Right-of-Use Assets
A lessee either presents right-of-use assets as a separate line item, or discloses which line items include them and the carrying amount — commonly property, plant and equipment, alongside owned assets. Either approach is acceptable if disclosed explicitly.
Right-of-use assets meeting the definition of investment property are presented within investment property instead, under IAS 40 rather than the requirements below.
Lease Liabilities
Lease liabilities follow the same principle: present separately, or disclose which line items include them. Where they sit within loans and borrowings, the maturity analysis and any related notes should still be able to isolate them.
Interest and Depreciation
Interest on the lease liability is presented within finance costs, separate from right-of-use asset depreciation. It cannot be netted into an operating or adjusted-EBITDA line without a reconciliation back to finance costs.
Cash Flow Classification
In the cash flow statement, the principal portion of lease payments sits within financing activities, and interest follows the entity's chosen policy for interest paid under IAS 7, applied consistently across all interest. Short-term, low-value and variable lease payments not in the lease liability sit within operating activities.
Common Review Point
A single, disclosed policy for interest paid must apply consistently across all borrowings — lease interest can't be classified differently just to flatter an operating cash flow metric.
Quantitative Disclosures for the Period
IFRS 16.53 requires the following amounts to be disclosed for the period, generally in tabular format:
| Disclosure | Reference | Notes |
|---|---|---|
| Depreciation charge for right-of-use assets by class of underlying asset | 53(a) | Mirror the classes already used in the property, plant and equipment note. |
| Interest expense on lease liabilities | 53(b) | Should tie to finance costs; reconcile if capitalised interest under IAS 23 causes a difference. |
| Expense relating to short-term leases | 53(c) | May exclude leases of one month or less. Watch for renewals that push the cumulative term past twelve months. |
| Expense relating to leases of low-value assets | 53(d) | Excludes amounts already captured in 53(c). Assessed asset-by-asset when new, not by portfolio. |
| Expense relating to variable lease payments not included in the lease liability | 53(e) | Common in retail turnover rent and usage-based equipment leases. |
| Income from subleasing right-of-use assets | 53(f) | Only relevant where the entity is an intermediate lessor; see sublease accounting. |
| Total cash outflow for leases | 53(g) | Build as an explicit reconciliation rather than a single unsupported figure. |
| Additions to right-of-use assets | 53(h) | Presented gross, before depreciation, consistent with the property, plant and equipment roll-forward. |
| Gains or losses on sale and leaseback transactions | 53(i) | Often nil, but confirm rather than default to N/A. |
Amounts capitalised into another asset instead of expensed — for example, lease costs capitalised into inventory or self-constructed PP&E — must still be disclosed under paragraph 54.
Reconciling the Cash Outflow
The total cash outflow in 53(g) is one of the first figures a reviewer will try to recompute from the cash flow statement. Build it from its components rather than presenting an unsupported total.
Right-of-Use Asset and Lease Liability Roll-Forwards
IFRS 16 doesn't mandate a full roll-forward format for either balance, but presenting one has become close to universal — it's the clearest way to meet the overall disclosure objective.
A right-of-use asset roll-forward typically shows, by class of underlying asset:
- opening carrying amount;
- additions;
- depreciation;
- disposals;
- remeasurements and modifications;
- impairment losses and reversals;
- foreign exchange movements; and
- closing carrying amount.
A lease liability roll-forward typically shows:
- opening balance;
- new leases entered into during the period;
- interest expense;
- lease payments made;
- remeasurements and modifications;
- foreign exchange movements; and
- closing balance.
Consistent asset classes across the roll-forward, the 53(a) disclosure, and the PP&E note avoid a common review comment: mismatched groupings between notes covering the same assets.
Maturity Analysis of Lease Liabilities
IFRS 16.58 requires a maturity analysis of lease liabilities, on IFRS 7's undiscounted cash flow basis, presented separately from other financial liabilities.
Two points set it apart:
-
Undiscounted basis. Prepared on undiscounted, contractual cash flows — not the discounted carrying amount on the balance sheet. Presenting it on a discounted basis is a common error.
-
No prescribed time bands. Common practice uses not later than one year, between one and five years, and later than five years, sometimes split more finely for entities with material long-dated property leases.
Because the analysis is undiscounted and the balance sheet liability is discounted, the two won't agree — best practice is a reconciling line for the discounting effect.
Where right-of-use assets meet the definition of investment property, a lessee need not duplicate these disclosures for those assets, provided the note cross-refers to the investment property note.
Additional Qualitative and Quantitative Disclosures
IFRS 16.59 and B48–B52 require additional context beyond the tables in paragraph 53:
- Nature of leasing activities — a short narrative on what's leased, why, and how significant leasing is to the business, given before the tables.
- Variable payment exposure — the structure of variable payments not in the lease liability, such as index-linked, turnover-linked or usage-linked rent, beyond the 53(e) amount.
- Extension and termination option exposure — options excluded from the lease term because exercise isn't reasonably certain, and the cash flows this leaves out. Should align with the IAS 1.122 lease term judgement.
- Residual value guarantee exposure — more relevant to vehicle and equipment fleets than property; quantify the maximum exposure where material.
- Leases not yet commenced — signed leases awaiting handover, easily missed since they have no balance sheet impact yet.
- Restrictions and covenants — for example, limits on dividends, additional debt, or further leasing or subletting.
- Sale and leaseback terms — the main terms of any sale and leaseback transactions, alongside the 53(i) gains or losses.
- Dissimilar short-term commitments — disclose under paragraph 60 if the year-end short-term lease portfolio differs materially from the one behind the 53(c) expense.
Interaction with Other Standards
Leases interact with several other standards; the note should address these or cross-refer clearly:
- IFRS 7 — lease liabilities are financial liabilities for IFRS 7 purposes, except the maturity analysis, which follows IFRS 16's own basis. Liquidity risk disclosures should reference or cross-refer to it.
- IAS 1.122 — significant judgements, such as lease existence, lease term, and discount rate, are typically disclosed in a judgements and estimates note, cross-referenced into the leases note.
- IAS 36 — right-of-use assets are subject to impairment testing, usually disclosed within the property, plant and equipment impairment note when the two are combined.
- IAS 8 — policy changes, error corrections, or new lease-related amendments follow the usual IAS 8 transition disclosures.
Lessors have a shorter, separate set of disclosures under IFRS 16.89–97, covering selling profit, finance income, and lease income and maturity analyses — relevant mainly to manufacturer or dealer lessors and leasing businesses.
Illustrative Leases Note
Company C is a retailer leasing store premises and delivery vehicles. At 31 December 2026, its leases note includes the following.
Right-of-use asset roll-forward (property):
| £'000 | Property | Vehicles | Total |
|---|---|---|---|
| Opening carrying amount | 4,200 | 850 | 5,050 |
| Additions | 600 | 300 | 900 |
| Depreciation | (520) | (280) | (800) |
| Remeasurements | 90 | – | 90 |
| Closing carrying amount | 4,370 | 870 | 5,240 |
Amounts recognised in profit or loss:
| £'000 | 2026 |
|---|---|
| Depreciation of right-of-use assets | 800 |
| Interest expense on lease liabilities | 245 |
| Expense relating to short-term leases | 35 |
| Expense relating to low-value asset leases | 18 |
| Expense relating to variable lease payments | 62 |
Total cash outflow for leases reconciliation:
| £'000 | 2026 |
|---|---|
| Principal paid on lease liabilities (financing activities) | 720 |
| Interest paid on lease liabilities (operating activities) | 245 |
| Short-term and low-value lease payments (operating activities) | 53 |
| Variable lease payments (operating activities) | 62 |
| Total cash outflow for leases | 1,080 |
Maturity analysis of lease liabilities (undiscounted):
| £'000 | 2026 |
|---|---|
| Not later than one year | 780 |
| Between one and five years | 2,340 |
| Later than five years | 610 |
| Total undiscounted lease payments | 3,730 |
| Effect of discounting | (410) |
| Lease liability recognised in the statement of financial position | 3,320 |
Company C would add a short narrative on the nature of its leases, its turnover-rent exposure, and the extension options excluded because exercise isn't reasonably certain.
Common Disclosure Pitfalls
- Treating short-term and low-value exemptions as immaterial — 53(c)–(d) still requires the expense disclosed, however small.
- Netting sublease income against lease expense without also disclosing it gross under 53(f).
- An unreconciled cash outflow figure under 53(g) that can't be traced to the cash flow statement.
- Inconsistent lease term judgements between the liability measurement and the extension and termination option narrative.
- Overlooking leases not yet commenced, since they sit outside the lease accounting system until commencement.
- A discounted maturity analysis, when IFRS 16.58 and IFRS 7.B11 require the undiscounted, contractual basis.
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Conclusion
IFRS 16 disclosures extend well beyond the balance sheet — depreciation, interest, short-term and low-value lease expense, variable payments, a maturity analysis, and qualitative disclosures on option exposure and sale and leaseback activity. Roll-forwards, a reconciled cash outflow figure, and consistent lease term judgements are what make a note genuinely informative, not just technically complete.
For clarification, guidance, or feedback on our article, please reach out to us at insight@leash.co.za.