A practical guide to short-term leases, low-value assets and transition practical expedients.
When implementing IFRS 16, lessees can apply two ongoing recognition exemptions: the short-term lease exemption and the low-value asset exemption. Entities adopting IFRS 16 for the first time may also have access to specific transition practical expedients. These are separate from the ongoing exemptions used after implementation.
The full requirements are set out in the IFRS Foundation’s IFRS 16 Leases standard. This article focuses on practical decisions for lessees and does not replace an entity-specific accounting assessment.
IFRS 16 normally requires a lessee to recognise a right-of-use asset and a lease liability at commencement. However, leases that qualify as short-term or low-value may instead be expensed, normally on a straight-line basis. This keeps the related asset and liability off the balance sheet, but generally leaves the cost within operating expenses, which means EBITDA is usually lower than under the general lessee model.
The assessment is based on the value of the underlying asset when new, even if the asset is used or reconditioned when the lease begins. It is an absolute assessment, not one that changes with the size of the reporting entity. A car or substantial item of equipment does not become low value simply because it is immaterial to a large group.
Assets that may qualify include certain tablets, personal computers, telephones, small office equipment and basic furniture. The category alone is not decisive: premium laptops, specialist technology or highly integrated equipment may not qualify.
Read more: AI in IFRS 16 lease accounting: Why control must come before automation.
A short-term lease has a lease term of 12 months or less at the commencement date and contains no purchase option. The election must be applied to an entire class of underlying assets (e.g., all IT equipment) rather than contract by contract. The accounting policy should therefore define the relevant classes and be applied consistently across entities and periods.
The key judgment is the lease term. It includes the non-cancellable period plus extension options the lessee is reasonably certain to exercise and termination options the lessee is reasonably certain not to exercise. Relevant evidence may include leasehold improvements, relocation costs, asset specialisation, operational dependency and the availability of alternatives.
Month-to-month and evergreen contracts require particular care. Finance teams should first determine the enforceable period, including whether either party can terminate with no more than an insignificant penalty. Historical use and management plans can be relevant, but continued use alone does not automatically create a longer lease term. The IFRS Interpretations Committee guidance on lease term provides useful context for this assessment.
A modification or change in lease term can change the accounting conclusion. The lease register should therefore trigger review when contracts are extended, amended, renewed or when options are exercised.
Lease and non-lease components: A lessee normally separates lease components from associated services and allocates consideration using relative stand-alone prices. As a practical expedient, it may elect by class of underlying asset to account for associated non-lease components together with the lease component. This reduces data work, but may increase the lease liability and right-of-use asset because more of the contract payment is included in lease accounting.
Portfolio application: IFRS 16 may be applied to a portfolio of leases with similar characteristics when the entity reasonably expects the result not to differ materially from individual application. This may support common assumptions or rate methodologies, but it does not justify using one discount rate for all leases merely for convenience. Currency, term, economic environment, security and other relevant characteristics must be considered.
Transition expedients: IFRS 16 became mandatory for annual periods beginning on or after 1 January 2019. Appendix C transition expedients are therefore mainly legacy matters in 2026. They may still be relevant when reviewing historical balances, acquired entities or original implementation documentation, but they should not be described as new recurring elections. The IFRS Foundation maintains supporting materials for IFRS 16 for current implementation resources.
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Recognition exemptions do not remove disclosure responsibilities. Finance teams still need reliable populations for short-term and low-value lease expense, significant judgments and relevant commitments. Connecting the lease register to calculations and disclosures reduces manual year-end work and helps keep policy, numbers and notes aligned.
Confirm that the contract is, or contains, a lease and identify its components.
Determine the enforceable period and lease term.
Assess short-term eligibility at commencement.
Assess low-value eligibility based on the asset’s value when new.
Confirm the election level and group policy.
Record the rationale, evidence, approval and review trigger.
Monitor changes that may require reassessment.
Read more: IFRS 16 lease accounting in 2026: From compliance task to controlled process.
Choosing an exemption is only the first step. Finance teams must preserve the assessment, apply policies consistently, monitor contract changes and connect decisions to calculations and reporting. House of Control helps organisations centralise lease data, calculations, reporting and supporting documentation across entities and periods, reducing dependence on disconnected spreadsheets and local knowledge.
Book a short demo to explore a more controlled process for lease accounting, documentation and audit readiness.
Disclaimer: This article provides general information and does not replace an entity-specific assessment of IFRS Accounting Standards, contractual enforceability, materiality or local reporting requirements.