Which statement best reflects IFRS 16's objective in terms of information provided?

• A. Provide information that faithfully represents leasing transactions and allows users to assess effects on financial position, performance and cash flows
• B. Require immediate expensing of lease payments
• C. Eliminate recognition of assets
• D. Only apply to property leases

Answer: (A)

IFRS 16 aims to provide information that faithfully represents leasing transactions and helps users assess their impact on financial position, performance and cash flows. This means leases are generally recognized on the balance sheet with a right-of-use asset and a lease liability, and the income statement and cash flows reflect both the finance costs/depreciation and the repayment of the lease liability. That on-balance-sheet presentation gives users a true picture of what the entity owes and what it owns through leases, and how lease activities affect profits and cash movements.

If lease payments were expensed immediately, there would be no recognition of the corresponding asset or liability, misrepresenting the resource use and obligations and distorting profitability and cash flow analysis. The idea that assets are eliminated is also inconsistent with IFRS 16, which requires recognizing a right-of-use asset. Finally, the standard does not apply only to property leases; it covers most lease types (with some exemptions for short-term or low-value leases), so limiting to property would be incorrect.