While both IFRS 16 (*Leases*) and ASC 842 (*Leases*, US GAAP) were developed jointly and share the same fundamental goal of bringing leases onto the balance sheet, several important differences remain in their application and measurement requirements.

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1. Lessee Classification of Leases

This is arguably the most significant divergence. Under IFRS 16, lessees apply a single lease model — virtually all leases are recognised as finance leases (right-of-use asset + lease liability), with limited exceptions (IFRS 16.5). Under ASC 842, lessees must still classify leases as either operating or finance leases, maintaining a dual-model approach. This distinction affects how expenses are presented in the income statement:

• Finance leases: front-loaded expense (interest + amortisation separately)
• Operating leases (ASC 842 only): straight-line single lease expense, with assets and liabilities still recognised on the balance sheet

• IFRS 16.5 provides exemptions for short-term leases (≤12 months) and low-value asset leases (assessed on an individual asset basis, typically assets with a value ≤ US$5,000 when new)
• ASC 842 only offers the short-term lease exemption — there is no low-value asset exemption under US GAAP

Both standards address modifications, but with nuanced differences. Under IFRS 16.44–46, a modification that adds scope and is priced at a standalone price is treated as a separate new lease. ASC 842 applies similar logic but uses different reassessment triggers and practical expedients, particularly for operating leases under the dual model.

4. Sale-and-Leaseback Transactions

Under IFRS 16.98–103, if a sale qualifies under IFRS 15, the seller-lessee recognises only the portion of gain relating to the rights transferred to the buyer-lessor. Under ASC 842, the entire gain is recognised at sale, provided the transaction meets the sale criteria — a potentially material difference in timing of gain recognition.

5. Subleases

Under IFRS 16.B58, a sublease is classified by reference to the right-of-use asset (not the underlying asset). Under ASC 842, classification references the underlying asset, which can lead to different lease classifications for the same arrangement.

6. Lessor Accounting

Both standards largely align on lessor accounting, retaining operating vs. finance lease classification. However, IFRS 16 requires additional disclosure around risk management for residual value exposure, and there are differences in the treatment of manufacturer/dealer lessors recognising day-one profits.

7. Presentation and Disclosure

• IFRS 16 requires separate presentation of interest on lease liabilities within financing activities (IAS 7 allows some flexibility)
• ASC 842 requires operating lease cash payments within operating activities for operating leases, creating cash flow statement differences that affect EBITDA and operating cash flow metrics

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Practical Impact

These differences mean that the same lease contract can produce materially different financial statement outcomes depending on the reporting framework, affecting EBITDA, leverage ratios, and operating cash flows — critical considerations for cross-border financial analysis and covenant compliance.