Accounting Standards and Adoption

History and Adoption of IFRS 16 Across Countries

IFRS 16 history and rationale

IFRS 16 was the culmination of a decade-long effort by the IASB (in cooperation with the FASB) to fix the shortcomings of IAS 17. The push began after 2005 when regulators and users became vocal about off-balance-sheet financing. The IASB and FASB issued discussion papers (2009) and exposure drafts (2010 and 2013) proposing new lessee accounting models, eventually converging on the idea that all leases create assets and liabilities that should be recognized. The two boards initially aimed for identical standards, but divergent views on expense recognition led to IFRS 16’s single-model approach versus FASB’s dual-model (see Section 4). IFRS 16 was issued in January 2016 (IASB, 2016) and took effect for annual periods beginning 1 January 2019, with earlier adoption allowed (IFRS Foundation, 2016). Around the same time, the FASB issued ASC 842 (February 2016) with a similar effective date for public companies (2019) but significant differences in subsequent measurement. Both standard-setters emphasized that recognizing lease assets and liabilities would provide more transparent and comparable information, ending the era of widespread off-balance-sheet financing (IFRS Foundation, 2016; FASB, 2016a).

Global adoption of IFRS 16

As noted, IFRS 16 (or its local equivalent) is required for listed companies in over 140 jurisdictions (Olivier, 2026). Key adoption details include:

• United Kingdom: The UK, which mandates IFRS for consolidated accounts of listed companies, implemented IFRS 16 in 2019 for those companies. For domestic private companies, the national standard FRS 102 did not incorporate IFRS 16’s model until recently. In 2022, the UK Financial Reporting Council (FRC) finalized amendments to FRS 102 (effective 1 January 2026) to bring lessee accounting in line with IFRS 16 (Deloitte, 2018; Olivier, 2026). Thus, from 2026 onward, virtually all leases (other than short-term or low-value) will be on UK GAAP balance sheets as well. As mentioned, micro-entities under FRS 105 will remain exempt and continue using the simpler old treatment (off-balance-sheet for operating leases) (Olivier, 2026). Ireland, which shares FRS 102, is following the same timeline. This phased approach in the UK/Irish context reflects a broader principle: listed multinationals must apply full IFRS (and thus IFRS 16), whereas smaller private firms often have delayed or reduced requirements, to balance cost-benefit considerations.

• European Union: All EU member states require IFRS for the consolidated financial statements of publicly traded companies, so IFRS 16 became mandatory in 2019 for those companies (IFRS was endorsed by the EU for use by listed companies). Consequently, the likes of France, Germany, Spain, Italy, etc., have all seen their large companies incorporate lease liabilities and ROU assets. However, for individual company accounts and for SMEs, many European countries still use local GAAP which, in most cases, has not yet been rewritten to mirror IFRS 16. For example, Germany’s HGB and France’s Plan Comptable Général continue to allow operating leases to remain off balance sheet for standalone accounts. Some European national standard-setters are evaluating changes for local GAAP (for instance, Germany is consulting on lease accounting changes for its national standards), but no sweeping adoption of IFRS 16 for SMEs has occurred as of 2025. In practice, this means a large private company in, say, Germany could be reporting its leases off-balance-sheet in statutory accounts (under HGB) even though its listed peers report them on-balance-sheet under IFRS 16. Nevertheless, any German company that goes public or files IFRS reports (or that is a subsidiary of an IFRS-reporting group) would be using IFRS 16. Thus, within the EU, the biggest companies follow IFRS 16, while smaller ones may not yet, depending on local regulations.

• Canada: Since 2011, Canadian public companies have been required to use IFRS (and thus IFRS 16 for leases). The Canadian Accounting Standards Board decided not to incorporate IFRS 16 into its domestic private company GAAP (ASPE) when IFRS 16 was issued (Olivier, 2026). ASPE Section 3065 still uses the old IAS 17-based dual model. So Canadian private enterprises generally did not face a requirement to capitalize leases (unless voluntarily adopting IFRS). This two-tier system means that, for example, a large Canadian public retailer had to add billions in lease liabilities under IFRS 16, while a similar-sized private retail chain using ASPE could still keep leases off balance sheet. There has been some pressure to update ASPE, but as of 2025 no new lease standard has been adopted for Canadian privates, partly because of concerns about complexity for smaller companies.

• South Africa: South Africa has effectively adopted IFRS for all publicly accountable entities (and even many smaller ones). The older SA GAAP was withdrawn, and companies either use full IFRS or the IFRS for SMEs. Thus, IFRS 16 is in force for virtually all companies of significant size in South Africa, with only those using IFRS for SMEs (typically without public accountability) still applying the older lease model. The South African regulator (SAICA) is expected to consider changes to the local SME standard once the IASB finalizes the IFRS for SMEs update to include IFRS 16 principles.

• Australia & New Zealand: Both countries are in the IFRS fold and adopted IFRS 16 for for-profit entities in 2019 (AASB 16 in Australia, NZ IFRS 16 in NZ). In Australia, most large and medium-sized entities, including public sector businesses, apply AASB 16 (with Tier 2 entities using the same recognition and measurement with reduced disclosures). Smaller Australian entities that are not publicly accountable previously could produce special purpose financial statements and thereby avoid some recognition requirements; however, Australia is moving toward requiring more entities to use its IFRS-aligned standards. The Australian public sector also adopted AASB 16 for government financial reporting. New Zealand’s for-profit sector similarly follows NZ IFRS 16, while its public sector and not-for-profits use Public Benefit Entity standards which are being updated to align with IPSAS 43 (which mirrors IFRS 16 for governments).

• Asia and other regions: Many other countries have adopted IFRS 16. Malaysia (MFRS 16) and Singapore (SFRS(I) 16) implemented standards equivalent to IFRS 16 in 2019 for listed and large firms. In Malaysia, smaller companies can use MPERS (IFRS for SMEs), thus bypassing IFRS 16 requirements for now. India introduced Ind AS 116 (largely identical to IFRS 16) in April 2019 for companies under Indian Accounting Standards. Japan permits IFRS for some companies (which would then use IFRS 16), but many Japanese companies use JGAAP, which has not adopted an IFRS 16 equivalent (leases can still be off-balance-sheet under certain criteria in JGAAP). China incorporated a new lease standard similar to IFRS 16 (CAS 21) in 2018 for companies reporting under Chinese AS. Broadly, the IFRS 16 approach has been accepted worldwide for large companies, with only a few exceptions or delays in certain local standards.

• Government entities:  IPSAS 43 (IPSASB, 2022) is the new global standard for government entities (effective 2025) and is also modeled after IFRS 16’s single lessee model, ensuring that governments worldwide will likewise bring leases on balance sheet (Olivier, 2026).

In essence, the IFRS 16 model – capitalize all substantial leases – has become a global benchmark, mandated for listed companies on every continent (Olivier, 2026). Differences remain chiefly for smaller entities and in local reporting requirements. However, even those gaps are closing as jurisdictions update their national standards (e.g., FRS 102 in the UK, planned updates to IFRS for SMEs, etc.). The momentum clearly favors bringing even SMEs and nonprofits onto the balance sheet for leases in the coming years, though proportionality (e.g., short-term and low-value exemptions, simplified disclosures) is used to ease the burden on those entities.

Globally:

• IFRS 16 is dominant for listed companies

• ASC 842 governs US entities

• SMEs lag behind

The direction is clear:

Everything is moving toward capitalization.

But adoption is uneven because:

The cost of compliance is operational—not conceptual

U.S. GAAP: ASC 842 (plus GASB 87/96 and SFFAS 54)

While IFRS 16 and ASC 842 share the fundamental requirement of lease asset and liability recognition, they differ in subsequent accounting. ASC 842, issued by the FASB in 2016, applies to U.S. entities and retains a dual classification approach for lessees (FASB, 2016a). Under ASC 842:

• All leases (except short-term leases) are on the balance sheet as ROU assets and liabilities (this is a new requirement compared to the old ASC 840).

• Expense recognition depends on lease classification. Lessees must classify each lease as either Operating or Finance, using criteria similar to the old capital lease tests (ASC 842’s criteria are based on transfer of ownership, purchase options, lease term or present value being significant relative to the asset’s life/value, etc.). If a lease meets one of those criteria, it is treated as a Finance lease (analogous to a capital lease) – the ROU asset is amortized, and interest expense is recognized on the liability, resulting in a front-loaded expense pattern. If none of the criteria are met, the lease is an Operating lease – the ROU asset and liability are recorded, but the lease expense is recognized on a straight-line basis over the lease term (similar to the old operating lease expense), and is presented as a single operating expense (FASB, 2016a; KPMG, 2021).

  Notably, both Operating and Finance leases under ASC 842 result in the same balance sheet totals (asset and liability) at commencement – the distinction only affects the Income Statement and cash flow presentation. The FASB’s rationale for this dual model was to preserve a pattern of lease expense for certain types of leases (especially property rentals) that stakeholders felt better reflected their economic usage – i.e., a straight-line rent expense for operating leases – while still achieving balance sheet transparency (FASB, 2016a). In practice, this means: 

  • For Finance leases under ASC 842, the expense is higher in early periods (interest + amortization) and lower later, exactly like under IFRS 16. Interest is presented as interest expense (below operating income), and amortization is typically in operating expenses.

  •  For Operating leases under ASC 842, the total lease cost remains level each period (straight-line), reported entirely as an operating expense (often as part of occupancy or rent expense). On the cash flow statement, payments for operating leases are classified as operating outflows (just like rent was).

•  Under US GAAP, the balance sheet will show identical right‑of‑use assets and lease liabilities for an operating lease and a finance lease with the same lease payments, as both are initially measured at the present value of those payments. The distinction between operating and finance leases affects only the pattern and presentation of expense recognition, not the amount of recognized liabilities. As a result, leverage ratios and total liabilities are not affected by lease classification, whereas profit‑based performance metrics—such as EBITDA and operating income—may differ significantly (KPMG, 2021).  The dual model adds complexity for U.S. companies (they must perform classification tests and manage two expense patterns) and slightly reduces comparability with IFRS reporters. However, many U.S. companies appreciated that they could maintain a single straight-line lease expense for what they view as “operating” leases, avoiding earnings volatility (FASB, 2016a). From an investor’s perspective, sophisticated users like credit analysts have long adjusted financials for leases anyway. Now that the liabilities are on the balance sheet, analysts typically focus on those and may not mind the Income Statement differences; however, the dual model means that less savvy users must be educated that under ASC 842, some lease obligations still result in “rent” expense (operating leases) while others result in interest + amortization.

Government and public sector standards: In the public sector, similar changes have occurred:

• GASB87 (Governmental Accounting Standards Board, 2017) is the lease standard for U.S. state and local governments, effective for reporting periods beginning after June 15, 2021. GASB 87 is conceptually closer to IFRS 16: it uses a single model for lessees. All leases beyond 12 months result in a “lease asset” (an intangible right-to-use asset) and a lease liability on the balance sheet. Periodic expense is split into interest and amortization (though some presentations in government financials differ from corporate accounts). The rationale was similar – to increase transparency for public sector obligations (many governments had significant long-term facility and equipment leases off-book). Follow-up standard GASB 96 (effective 2022) extends this model to Subscription-Based IT Arrangements, acknowledging that software subscriptions are like leases in economic substance. One difference is that governments often had thousands of arrangements and faced practical challenges in implementation (ACAG, 2025), but from an accounting standpoint GASB 87 aligns closely with IFRS 16.

• SFFAS 54 (Statement of Federal Financial Accounting Standards No. 54) is the lease standard for U.S. federal government entities, issued by the Federal Accounting Standards Advisory Board (FASAB) in 2018 and effective for fiscal years beginning October 1, 2023 (FASAB, 2018). SFFAS 54 also requires federal agencies (as lessees) to recognize “right-to-use lease assets” and lease liabilities for essentially all leases, using a single-model approach (similar to GASB 87). This is a significant change for U.S. federal financial reports, aligning them with the direction of IFRS 16. (It’s worth noting that budgetary accounting in the federal system still treats many leases on a cash basis, but that does not affect the accrual financial statements.)

In the U.S. context, by 2022 virtually all organizations – public companies, private companies (after the deferred effective date), nonprofits, and government bodies – have a mandate to report leases on their balance sheets, though with some variations in how expenses are recognized. The transition was significant for many (see Section 5 on adoption impacts), but it addressed the long-standing concern that lease obligations were not reflected in financial statements, thereby improving the completeness of financial reporting for all types of entities.

ASC 842’s dual model creates complexity in one place: Classification, not recognition.

In practice:

Companies spend disproportionate effort deciding operating vs finance

even though: both end up on the balance sheet

The Real Issue

ASC 842 solves transparency, but not simplicity.

And for many companies: A detailed disclosure note might have achieved similar insight with less effort.

This is rarely said out loud—but widely felt.