IFRS 16 (as adopted by FRSC)

IFRS 16 Lease Calculator
South Africa

IFRS 16 lease calculator with South Africa-specific regulatory context, Independent Regulatory Board for Auditors (IRBA) / Johannesburg Stock Exchange (JSE) expectations, and local inspection findings.

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.

No spam. Unsubscribe anytime.

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 in South Africa — IFRS 16 (as adopted by FRSC)

South Africa adopted IFRS 16 through the Financial Reporting Standards Council (FRSC), effective for annual periods beginning on or after 1 January 2019. South Africa applies IFRS as issued by the IASB without modification for companies listed on the Johannesburg Stock Exchange (JSE) and other public interest entities. The Independent Regulatory Board for Auditors (IRBA) oversees audit quality, while the JSE sets listing requirements that include financial reporting obligations. South Africa's higher interest rate environment (relative to European markets) significantly impacts IFRS 16 lease liability measurements.

Regulatory Context — Independent Regulatory Board for Auditors (IRBA) / Johannesburg Stock Exchange (JSE)

The IRBA has included IFRS 16 in its audit inspection focus areas. Key IRBA findings include: insufficient challenge of management's IBR in a volatile interest rate environment, inadequate consideration of the impact of South African exchange controls on foreign currency leases, and insufficient documentation of lease term judgments for commercial and industrial properties. The JSE has issued guidance on IFRS 16 disclosure expectations for listed entities.

Practical Guidance for South Africa

For South African entities, the IBR must reflect the significantly higher interest rate environment compared to European markets. Reference SA Government bond yields (R186, R2048 benchmarks) for the risk-free component, plus entity-specific credit spreads. The South African Reserve Bank (SARB) repo rate provides the policy rate anchor. Commercial property leases in South Africa typically run for 3–10 years with escalation clauses of 7–10% per annum (reflecting historical inflation). These high escalation rates create substantial lease liabilities when future escalated payments are included in the present value calculation.

Audit Expectations

South African registered auditors follow ISA as adopted by the IRBA. IRBA inspection findings have highlighted the unique challenges of IFRS 16 in the South African context, including the impact of high discount rates on lease liability sensitivity, the treatment of load-shedding equipment leases (generators, UPS systems), and the assessment of BEE (Black Economic Empowerment) implications of significant lease commitments.

South Africa-Specific Considerations

South Africa-specific considerations include the B-BBEE (Broad-Based Black Economic Empowerment) implications of significant lease portfolios. The ownership element of the B-BBEE scorecard may be affected by IFRS 16 changes to total assets and equity. The South African tax treatment of leases is governed by the Income Tax Act 58 of 1962 — Section 11(a) allows deduction of lease payments incurred in the production of income. IFRS 16 does not change the tax treatment. For South African entities with USD-denominated leases (common for equipment imported from the US), the IAS 21 foreign currency retranslation of the lease liability at each reporting date creates P&L volatility given ZAR/USD exchange rate movements.

Common Inspection Findings

IBR not adequately assessed in the context of SARB rate changes and ZAR yield curve

High annual escalation clauses (7-10%) not correctly modelled in lease liability calculations

Load-shedding equipment leases (generators, UPS) not included in lease population

Foreign currency lease liabilities (USD-denominated) not retranslated at reporting date

B-BBEE implications of IFRS 16 balance sheet changes not considered

Frequently Asked Questions — South Africa

How does South Africa's high interest rate environment affect IFRS 16?
Higher discount rates (typically 9–12% for South African entities vs. 3–5% in Europe) result in lower initial lease liabilities for the same lease payments and term. However, the higher interest expense accrual in early periods creates a more front-loaded expense profile. The sensitivity of the lease liability to the discount rate is also different — small rate changes have a proportionally smaller impact at higher rate levels.
How do annual escalation clauses of 7–10% affect the calculation?
Fixed annual escalation clauses (common in South African commercial leases) are included in the lease payment schedule for IFRS 16 measurement. Each year's escalated payment is discounted to present value. With 8% annual escalation over a 10-year lease, the final year's payment may be more than double the initial payment, creating a substantial lease liability even with high discount rates. This is a significant South Africa-specific feature.
What IRBA findings should South African auditors be aware of?
IRBA inspections have highlighted: failure to adequately challenge IBR in a volatile rate environment, insufficient procedures over lease completeness (especially generator and UPS leases acquired during load-shedding), inadequate assessment of exchange rate risk for USD-denominated equipment leases, and insufficient documentation of lease term assessments for commercial properties.
How are load-shedding equipment leases treated under IFRS 16?
Generator and UPS leases entered to mitigate load-shedding are standard IFRS 16 leases. Apply the usual identification criteria (IFRS 16.9) — most dedicated generator leases are clearly leases. Consider whether maintenance and fuel supply agreements are non-lease components requiring separation. The short-term exemption is available if the lease term is 12 months or less.
Does B-BBEE scoring affect IFRS 16 considerations?
IFRS 16 changes total assets (increase by ROU assets) and may affect net asset value calculations used in B-BBEE ownership element scoring. Entities should assess whether the IFRS 16 impact on their balance sheet affects B-BBEE compliance or scoring. The BEE Commission has not issued specific guidance on IFRS 16 implications, but entities should monitor developments.

Other Country Guides

← General Calculator United Kingdom Germany Netherlands France Belgium Australia Canada Ireland United Arab Emirates
Materiality Calculator Going Concern Checklist