What did IFRS 16 replace?

IFRS 16: A New Era for Lease Accounting

IFRS 16, which came into effect in 2019, marked a major shift in how companies report leases in their financial statements. Before this standard, lease accounting was governed primarily by IAS 17 Leases, along with related interpretations like IFRIC 4, SIC-15, and SIC-27. These older standards allowed many leases—especially operating leases—to remain "off balance sheet," meaning companies could lease assets like office space, vehicles, or equipment without recording them as liabilities or assets.

This lack of transparency made it difficult for investors and regulators to fully assess a company’s financial obligations. IFRS 16 was introduced to close this gap. It replaced the fragmented guidance of the past with a single, comprehensive model for lease accounting.

Under IFRS 16, almost all leases must now be recognized on the balance sheet. Lessees are required to record a "right-of-use" asset and a corresponding lease liability, reflecting the reality of their long-term commitments. This change brought greater transparency and comparability across financial statements globally.

The standard applies to both lessees and lessors, though the biggest impact has been on lessees, who can no longer hide significant financial commitments in the footnotes. While the transition was complex for many organizations—requiring changes in systems, processes, and reporting—it ultimately resulted in more accurate financial reporting.

In short, IFRS 16 didn’t just replace IAS 17 and its interpretations—it transformed how the world sees leasing. By bringing leases out of the shadows, it ensures that what a company owes is no longer invisible to those reviewing its books.