Aligning IFRS 16 for Irish companies

IFRS 16 compliance may be established, but many Irish companies still struggle with inefficient processes, inconsistent data, and time-consuming reporting. For finance teams, the challenge isn’t just staying compliant, it’s doing so in a way that improves control, accuracy, and decision-making.

In this article, we explore how Irish companies can better align their IFRS 16 processes and move towards more efficient, automated reporting.

Understanding IFRS 16 for Irish companies 

IFRS 16 requires most leases to be recognised as a right-of-use (ROU) asset and a corresponding lease liability. That converts operating lease off-balance-sheet amounts into on-balance-sheet assets and liabilities, with depreciation and interest replacing lease expense for most leases.

For Irish companies this has several practical consequences. Balance sheets and leverage ratios change, which can affect bank covenants and credit metrics. Profit and loss timing shifts as interest is front-loaded and depreciation is straight-lined. Tax timing differences may arise between accounting depreciation and deductible lease payments, so coordinate with tax teams.

In group structures, consistent application of discount rates, reassessment policies and intercompany lease treatment is essential to avoid consolidation differences. Finally, communicate changes to lenders, auditors and the board early to manage stakeholder expectations.

What changes are needed in accounting processes? 

Accounting processes must change at every lease lifecycle stage: identification, initial measurement, subsequent measurement and disclosure. Start by mapping existing workflows and identifying who owns each step. Typical owners include lease administrators for contract capture, accounting teams for measurement and treasury for discount rates and covenant monitoring.

Journal entry flows must be redesigned. Initial recognition creates an ROU asset and a lease liability with any initial direct costs, prepaid or accrued lease payments impacting either asset or liability. Subsequent entries include depreciation on the ROU asset and interest on the lease liability, plus remeasurement entries for modifications or reassessments.

Controls are critical to prevent omissions. Assign clear ownership for contract ingestion, data validation and monthly reconciliations. Implement approval steps for significant judgements such as lease term assessments and discount rate selection. Regarding transition, choose between a full retrospective restatement or a modified retrospective approach. Full retrospective gives comparatives aligned to current accounting but is resource heavy. Modified retrospective is easier operationally but requires reconciliations between prior year balances and the opening balance sheet. Decide early and document the rationale, as the choice affects comparatives, disclosure and audit effort.

Practical steps to gather and validate lease data 

Accurate lease accounting starts with a complete lease inventory and validated contract data. Locate leases across legal entities, business units and local offices. Contracts can hide in procurement, real estate, operations or vendor portals, so coordinate with procurement and facilities teams.

Essential fields checklist:

- Contract ID.

- Lessor and lessee.

- Commencement and end dates.

- Lease term options and termination rights.

- Payment schedule, frequency and indexing clauses.

- Service components and allocation notes.

After collecting fields, run validation checks. Verify that commencement dates match the contract and the operational takeover date. Reconcile payment schedules to bank and AP records. Identify escalation clauses such as CPI indexing or fixed increases and capture how they are calculated. Flag variable payments tied to usage separately from fixed lease payments. Record any service components or embedded leases and document allocation methods. Where judgment is required, record who made the judgement, the date and supporting evidence.

 Read more: The impact of IFRS 16 on 12 different financial ratios 

Systems, controls and month-end reporting for IFRS 16 for Irish companies

Systems must support a consistent source of truth for ROU assets and lease liabilities. Ensure your ERP and lease accounting tool produce identical ROU and liability balances and that they feed consolidated reporting without manual rework. Interfaces should automate posting of monthly depreciation and interest journals, and capture remeasurement entries with audit trails.

Set up automated journal templates to reduce manual input and errors. Implement control points where users must confirm discount rates, reassessments and lease modifications before journals post to the general ledger. Establish reconciliation routines that match the lease subledger to the GL each month and explain reconciling items promptly.

Adapt the month-end close calendar to include lease-specific tasks. Add a lease reconciliation step early in close to surface discrepancies, schedule sign-offs for judgement areas and allocate time to prepare disclosure pack items such as maturity analyses and expense breakdowns. For multi-entity groups, build consolidation checks that confirm intercompany leases are eliminated consistently and that discount rate policies are applied uniformly.

Read more: IFRS 16 cheat sheet by House of Control

Audit readiness and common pitfalls

Auditors expect clear evidence of lease identification, a documented discount rate methodology and governance over lease changes. Prepare an audit folder containing the lease register, signed contracts, calculation workpapers, discount rate support and board or management approvals for significant judgements. 

Common pitfalls include incomplete contract coverage, incorrect assessment of lease terms (especially options and renewal periods), misuse of low-value or short-term exemptions, and inconsistent discount rate applications across entities. Another frequent issue is failing to treat CPI-linked or other indexed payments correctly in remeasurement calculations.

Run pre-audit checks to reduce queries. Reconcile totals between the lease register, the subledger and the GL. Document judgement calls with rationale and supporting data. Keep a clear trail of modifications and their accounting treatment. These steps reduce audit friction and shorten query cycles.