IFRS 16 · Not-for-Profit

IFRS 16 Lease Calculator
for Not-for-Profit

Pre-configured for not-for-profit entities navigating peppercorn leases, donor-restricted fund interactions, and the accounting challenges of below-market leases common in the charitable sector.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF

Quick reference card, IBR documentation template, lease assessment flowchart, and audit working paper template. Plus one practical audit insight per week.

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 for Not-for-Profit — Practical Guidance

Not-for-profit entities — charities, foundations, associations, and social enterprises — frequently hold lease portfolios comprising office premises, community facilities, and vehicles. IFRS 16 creates particular challenges for the sector because many leases are at below-market rates (peppercorn leases) received from donors, government, or related parties. The interaction between IFRS 16 and grant accounting (IAS 20 or local GAAP equivalents) adds complexity. For Dutch stichtingen and verenigingen, the application of IFRS 16 depends on whether the entity reports under IFRS, Dutch GAAP (RJ), or sector-specific reporting standards.

Measurement Considerations for Not-for-Profit

Peppercorn leases — leases at nominal or significantly below-market rents — create a measurement challenge under IFRS 16. Some jurisdictions require recognition of below-market leases at fair value, with the difference treated as a donation or grant. Under strict IFRS 16, the lease liability is measured at the present value of actual lease payments, which for a €1/year peppercorn lease is negligible. However, entities reporting under local GAAP (e.g., Charities SORP in the UK) may be required to measure at fair value. The calculator uses actual payments as the IFRS 16-compliant approach.

ROU Asset Depreciation for Not-for-Profit

For not-for-profit entities, the total expenditure benchmark is the standard approach for assessing the materiality of lease balances. Combined depreciation and interest expense under IFRS 16 replaces the previous operating lease expense, affecting the entity's total expenditure measure and potentially its administrative cost ratios — metrics that donors and regulators scrutinise closely. Entities should clearly disclose the IFRS 16 impact on administrative cost ratios to avoid misinterpretation.

Industry-Specific Considerations

Donor-restricted funds add an accounting dimension specific to not-for-profits. If a donor has funded the lease payments from a restricted fund, the entity must ensure that IFRS 16 costs (depreciation and interest, which differ from cash lease payments in timing) are consistently matched with restricted fund income recognition. This may require adjustments to the fund accounting to ensure restricted fund compliance while applying IFRS 16 correctly. ANBI-status entities in the Netherlands have additional transparency requirements under the ANBI regulations that may require specific IFRS 16 disclosures in publicly accessible financial statements.

Worked Example: 5-Year Charity Office Lease

A charitable foundation leases office space for 5 years commencing 1 January 2025. Monthly rent is €2,000 payable in arrears. The charity's IBR is 5.0%, estimated using a public sector reference rate. No initial direct costs. There is a modest restoration obligation of €5,000 to reinstate the office at lease end.

Initial Liability
€106,120
Initial ROU Asset
€111,120
Total Interest
€13,880
Total Payments
€120,000

Audit Considerations

Auditors of not-for-profit entities should consider whether peppercorn leases create related party implications under ISA 550 and whether the applicable reporting framework requires fair value measurement. Grant compliance audits may need to address the IFRS 16 impact on expenditure classification. For charities, sector-specific guidance (Charities SORP, ANBI regulations) may impose requirements beyond IFRS 16.

Frequently Asked Questions — Not-for-Profit

How do I account for a peppercorn (below-market) lease under IFRS 16?
Under IFRS 16, measure the lease liability at the present value of actual lease payments. For a nominal rent, the lease liability will be minimal. Some jurisdictions (e.g., UK Charities SORP, Australian AASB 16) require measurement at fair value with the below-market benefit recognised as income (donation). Under strict IFRS 16, the ROU asset equals the lease liability plus any initial costs. Document which framework applies to your entity.
How does IFRS 16 affect our administrative cost ratio?
IFRS 16 replaces operating lease expense (typically classified as administrative) with depreciation and interest expense. If your administrative cost ratio is calculated pre-IFRS 16, the reduction in occupancy expense within admin costs will improve the ratio. However, depreciation and interest may be classified differently. Disclose the IFRS 16 impact clearly to donors and regulators to ensure the ratio is understood in context.
Can we use the short-term lease exemption for event venue hire?
Yes, provided the total lease term (including any extension options reasonably certain to be exercised) is 12 months or less. Venue hire for individual events, conferences, or temporary programmes typically qualifies. The exemption is applied by class of underlying asset — if elected for event venues, apply consistently to all similar arrangements.
How do we handle donor-restricted funding of lease payments under IFRS 16?
The IFRS 16 accounting for the lease is independent of the funding source. Recognise the lease liability and ROU asset under IFRS 16 regardless of whether payments are funded by restricted or unrestricted income. For restricted fund reporting, ensure the fund accounting reflects the release of restricted income in a pattern consistent with the IFRS 16 expense profile (depreciation + interest) rather than cash payments.
Do ANBI-registered entities in the Netherlands have specific IFRS 16 requirements?
ANBI entities must publish their financial statements, but the accounting framework depends on size and sector. Smaller ANBIs may use RJ-C1 (small entities), which may not require IFRS 16 application. Larger ANBIs reporting under full RJ or IFRS must apply the relevant lease standard. The Belastingdienst does not impose IFRS 16-specific requirements, but transparency obligations mean lease commitments should be clearly disclosed in publicly available financial statements.

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