BLM00025 - Introduction: Leasing: The accounting definition of a lease

FRS 102 (Appendix I Glossary) defines a lease as:

“An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.”

IFRS 16.9 takes an alternative approach by defining whether a contract is, or contains a lease:

“A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration”.

IFRS 16 Appendix B9 further requires an entity to “assess whether, throughout the period of use, the customer has both of the following:

“a) the right to obtain substantially all of the economic benefits from use of the identified asset; and

b) the right to direct the use of the identified asset.”

Whilst the requirements are different, conclusions about whether a lease exists are not expected to change in many cases. In cases of doubt or difficulty and where the recognition of a lease is relevant to the tax position of the lessee or lessor you should seek advice from your local advisory accountant before reaching a conclusion.