Lease accounting concepts (PSAK 116 / IFRS 16)

Nextera Accord is a lease accounting platform. Almost every decision it asks you to make comes from one accounting standard, so it is worth understanding that standard before you open the product.

Which standard applies to you

IFRS 16 Leases replaced IAS 17 and applies to entities reporting under IFRS.

PSAK 116 Sewa is the Indonesian adoption of IFRS 16. Its history matters, because the numbering is a common source of confusion:

Standard	Status
PSAK 30 Sewa	The former Indonesian lease standard, based on IAS 17
PSAK 73 Sewa	Issued 2017 as the IFRS 16 adoption; effective 1 January 2020, superseding PSAK 30
PSAK 116 Sewa	The same standard, renumbered so Indonesian numbering aligns with IFRS numbers. Ratified by DSAK IAI in December 2022, effective 1 January 2024

PSAK 116 and PSAK 73 are not two standards. If your policy documents still say PSAK 73, they are out of date in numbering, not in substance.

Note

This page uses “IFRS 16” for the requirement and notes PSAK-specific points where they differ. Where a group reports under both, the recognition and measurement outcomes are the same.

What counts as a lease

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Three tests, all of which must hold:

1. There is an identified asset. Specified explicitly or implicitly. If the supplier has a substantive right to substitute an alternative asset — and would benefit economically from doing so — there is no identified asset, and therefore no lease.
2. You obtain substantially all of the economic benefits from using that asset over the period of use.
3. You direct how and for what purpose the asset is used over that period.

This is why the assessment is a contract-by-contract exercise rather than an asset-register exercise, and why the first weeks of an implementation are dominated by contract review rather than by system configuration.

It is also why “lease” in the accounting sense is wider than “lease” in the commercial sense. Service contracts, outsourcing arrangements, warehousing agreements and IT hosting contracts routinely contain leases; contracts titled “lease” occasionally do not.

The lessee model: one model, two exemptions

IFRS 16 removed the operating/finance split for lessees. Every lease produces:

• a right-of-use (ROU) asset — your right to use the underlying asset; and
• a lease liability — your obligation to make the lease payments.

Two optional recognition exemptions exist, applied as policy choices:

• Short-term leases — a lease term of 12 months or less at commencement, with no purchase option. Elected by class of underlying asset.
• Low-value assets — assessed on the value of the asset when new, in absolute terms, not by materiality to your financial statements. Elected lease by lease.

Exempt leases are expensed on a straight-line basis (or another systematic basis) and still carry disclosure obligations. Electing an exemption reduces measurement work; it does not remove the lease from your population.

Measuring the lease liability

At the commencement date, the liability is the present value of the lease payments not yet paid.

Lease payments included:

• fixed payments, less any lease incentives receivable;
• variable payments that depend on an index or rate, measured using the index or rate as at commencement;
• amounts expected to be payable under a residual value guarantee;
• the exercise price of a purchase option, if reasonably certain to be exercised;
• termination penalties, if the lease term reflects exercising a termination option.

Variable payments linked to usage or sales are excluded from the liability and expensed as incurred. This is one of the most common measurement errors, and it is worth checking explicitly on every contract with a turnover-linked rent.

The discount rate

Use the interest rate implicit in the lease if that rate is readily determinable. It usually is not — it requires knowing the lessor’s initial direct costs and the unguaranteed residual value — so lessees generally use the incremental borrowing rate (IBR): the rate you would pay to borrow, over a similar term and with similar security, the funds needed to obtain an asset of similar value in a similar economic environment.

Your IBR methodology is a policy decision your auditor will test. Settle it before implementation, not during. The questions that need answering are: at what level are rates derived (entity, currency, term band, asset class), how often are they refreshed, and what observable inputs support them.

Measuring the right-of-use asset

ROU asset = lease liability at commencement
          + payments made at or before commencement
          − lease incentives received
          + initial direct costs
          + estimated dismantling / restoration / site-restoration costs

Subsequent measurement

The liability is carried at amortised cost using the effective interest method: it accretes interest and is reduced by payments made.

The ROU asset is depreciated, normally straight-line, over the shorter of the asset’s useful life and the lease term — except where ownership transfers at the end of the term, or a purchase option is reasonably certain to be exercised, in which case depreciation runs over the asset’s useful life. Impairment testing under IAS 36 applies.

The practical consequence, and the one to explain to non-accountants early: a lease that used to be a flat straight-line rent expense now produces front-loaded total expense (interest is highest when the liability is largest, while depreciation is level), and the cash outflow moves from operating to financing in the cash flow statement. EBITDA improves; that is an artefact of the standard, not of performance.

Remeasurement: the part that actually consumes your month

Remeasurement is the operational heart of lease accounting, and the reason a spreadsheet stops scaling somewhere between fifty and a few hundred leases. The trigger determines whether the discount rate is revised:

Trigger	Revise the discount rate?
Change in the assessment of a purchase option	Yes
Change in the lease term (extension or termination reassessment)	Yes
Change in amounts expected under a residual value guarantee	No — use the original rate
Change in future payments from a change in an index or rate	No — use the original rate
Change in future payments from a change in floating interest rates	Yes

Remeasurements adjust the ROU asset. If the ROU asset has already been reduced to nil, the remainder goes to profit or loss.

Modifications are distinct from remeasurements. A modification that adds the right to use one or more additional assets, at a price commensurate with the stand-alone price, is accounted for as a separate lease. All other modifications remeasure the existing lease.

Lessor accounting is unchanged

IFRS 16 kept the dual model for lessors. Leases are still classified as finance or operating, based on whether substantially all the risks and rewards incidental to ownership transfer to the lessee. If you are a lessor as well as a lessee — common for insurers with property portfolios, and for anyone who subleases — you are running two different models simultaneously.

What you have to disclose

IFRS 16 requires lessees to disclose, in a single note or separate section of the financial statements:

• depreciation charge for ROU assets, by class of underlying asset;
• interest expense on lease liabilities;
• expense relating to short-term leases, and to low-value asset leases;
• expense relating to variable lease payments not included in the liability;
• income from subleasing ROU assets;
• total cash outflow for leases;
• additions to ROU assets;
• gains or losses arising from sale-and-leaseback transactions;
• the carrying amount of ROU assets at the reporting date, by class.

Plus a maturity analysis of lease liabilities, presented separately from other financial liabilities.

The disclosure list is effectively the specification for your reporting module — which is why disclosure requirements, not journals, should drive how you structure your lease data. A lease register that cannot split by class of underlying asset cannot produce the required note, no matter how correct its arithmetic is.

How these concepts map to Nextera Accord

Concept on this page	Nextera Accord module
Identifying a lease; recognition exemptions	Lease classification
Lessor finance versus operating classification	Lease classification
ROU asset initial and subsequent measurement	Right-of-use assets
Liability measurement, discount rate, amortised cost	Lease liabilities
Remeasurement triggers and modifications	Remeasurement
Disclosure schedules and the maturity analysis	Disclosure reporting
Standard selection and policy elections	PSAK 116 / IFRS 16

SME input needed

The mapping above pairs each accounting concept with the Nextera Accord module that owns it. It does not describe the product’s data model, and no record, field or screen name on this page should be assumed to exist.

A Nextera Accord product owner needs to confirm:

1. What is the top-level record a user creates — a contract, a lease, or a lease component?
2. How are multi-component contracts (a lease plus a non-lease service element) represented?
3. Where do IBR policy and rate tables live, and are rates entered per lease or per portfolio?
4. Are the short-term and low-value exemptions a per-lease flag, a class-level policy, or both?
5. Which of the required disclosures are produced as standard reports, and which need configuration?

Owner: unassigned · Target: TBD · Blocks: publication of a data-model section

Until these are answered, this page teaches the standard, not the software.

Next

• Preparing for your first close in Nextera Accord
• Nextera Accord modules
• Glossary