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The introduction of IFRS 16 (AASB 16) brought about a significant change in lease accounting, demanding a more comprehensive and transparent approach. However, the evolution of the standard has not stopped there.
The Future of Lease Accounting: Beyond IFRS 16 and the Ongoing Review
07 March 2025
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9 minute read
As businesses navigate an increasingly complex landscape, the future of lease accounting is being shaped by emerging trends, particularly the integration of technology and data analytics, the growing influence of sustainability and ESG factors, and the broader implications of global regulatory alignment. Crucially, the ongoing post-implementation review of IFRS 16 by the International Accounting Standards Board (IASB) will also play a pivotal role in shaping the future of lease accounting. While no major rollbacks or changes are expected, the operational impact on businesses will be a significant talking point.
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The rising role of technology in lease accounting
One of the most significant developments is the increasing reliance on technology. Manual lease management and lease accounting are becoming relics of the past, as organisations seek efficiency, accuracy, and real-time insights. Advanced software solutions, powered by automation and artificial intelligence, are streamlining processes, improving accuracy, and enhancing compliance. These platforms offer centralised repositories for lease data, automated calculations for lease liabilities and right-of-use assets, and real-time reporting capabilities, enabling finance teams to make informed decisions faster than ever.
Beyond automation, AI and machine learning are beginning to reshape lease accounting by identifying patterns and anomalies that might go unnoticed in traditional reporting methods. AI-driven contract analysis tools can extract key terms and conditions from lease agreements, reducing the time spent on manual reviews and minimising the risk of human error. Furthermore, cloud-based lease accounting solutions allow businesses to access real-time data from anywhere, empowering collaboration across departments and geographical locations.
Data analytics and strategic decision-making
Data analytics is also playing a crucial role in transforming lease accounting. By leveraging data insights, organisations can gain a deeper understanding of their lease portfolios, identify cost-saving opportunities, and make more informed strategic decisions. For example, predictive analytics can forecast future lease expenses, enabling better budgeting and financial planning. Advanced data visualisation tools provide clear and concise representations of lease data, facilitating communication and collaboration among stakeholders.
Another emerging aspect of data analytics is benchmarking, where businesses compare their lease portfolio performance against industry standards. This allows organisations to negotiate better lease terms, optimise space utilisation, and identify inefficiencies in their real estate strategy. By taking a proactive, data-driven approach to lease management, businesses can ensure they are not only meeting compliance obligations but also maximising the financial benefits of their lease agreements.
Global regulatory alignment and IFRS 16
Beyond operational efficiency, technology is also enabling more sophisticated compliance monitoring. Lease accounting software can track changes in accounting standards and regulations, helping ensure that organisations remain compliant with evolving requirements. This is particularly important in a globalised business environment where companies may be subject to multiple accounting standards. While IFRS 16 has established a global framework for lease accounting, different jurisdictions continue to introduce variations in reporting requirements. The growing need for regulatory alignment is placing additional pressure on businesses operating across multiple countries. Companies must keep up with differences in tax treatments, local compliance obligations, and evolving disclosure requirements.
The IASB's Post-Implementation Review (PIR) of IFRS 16, which commenced in June 2024, is expected to address some of these challenges. The review aims to assess whether IFRS 16 is functioning as intended and identify any unintended consequences. While no major changes to the standard are anticipated, the review process could result in refinements that clarify interpretation issues and improve practical implementation. The first half of 2025 will be particularly important, as the IASB plans to publish a Request for Information, incorporating feedback from stakeholders, consultative groups, and IFRIC discussions.
For businesses, this means that ongoing vigilance will be required to adapt to potential refinements and evolving best practices. Companies should ensure that their lease accounting systems are flexible enough to accommodate any changes resulting from the IASB’s review, while also preparing for increasing regulatory scrutiny around lease disclosures.
Sustainability, ESG, and lease accounting
The growing emphasis on sustainability and ESG factors is having a profound impact on lease accounting practices. Businesses are increasingly recognising the importance of incorporating sustainability considerations into their lease decisions. Companies are prioritising leases for energy-efficient buildings, integrating renewable energy sources into their leased properties, and focusing on locations with robust public transportation infrastructure to reduce their carbon footprint.
ESG reporting is also driving changes in lease accounting. Companies are now required to disclose information about the environmental and social impact of their leased assets, including greenhouse gas emissions, energy consumption, and waste generation associated with leased properties. Lease accounting systems are being adapted to capture and report this data, enabling organisations to demonstrate their commitment to sustainability.
Additionally, financial institutions and investors are placing greater emphasis on green leasing practices, where tenants and landlords incorporate sustainability commitments into lease agreements. These could include provisions for renewable energy use, waste reduction initiatives, or shared sustainability goals. As regulatory bodies introduce stricter ESG disclosure requirements, businesses will need to integrate ESG considerations into their lease accounting practices, making transparency and reporting accuracy more critical than ever.
Preparing for the future of lease accounting
Looking ahead, the future of lease accounting will be characterised by greater automation, data-driven decision-making, a stronger focus on sustainability, and the evolution of IFRS 16 based on the IASB’s review. As technology continues to advance and ESG considerations become more ingrained in business practices, lease accounting will play an increasingly strategic role in helping organisations achieve their financial and non-financial objectives.
To prepare for the future, businesses should consider investing in robust lease accounting software that can adapt to evolving regulations, integrate ESG data, and provide predictive insights. Finance teams should also prioritise training and upskilling to stay ahead of technological advancements and regulatory changes.
For accounting professionals and financial leaders, staying informed and proactive will be essential. By embracing emerging trends and adopting advanced technology, organisations can enhance their lease management capabilities, improve financial performance, and contribute to a more sustainable future. As lease accounting becomes more complex, the businesses that successfully navigate these changes will gain a competitive edge in a rapidly evolving market.
By Ben Scull, head of sales and partnerships, Nomos One
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