Lease Terms
IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF
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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 Transportation & Logistics — Practical Guidance
Transportation and logistics companies were among the industries most affected by IFRS 16, alongside airlines and retailers. Fleet leases — trucks, vans, trailers, forklifts, and company vehicles — create high-volume lease portfolios where even small measurement errors multiply across thousands of individual leases. Warehouse and distribution centre leases add significant individual balances. The combination of high volume (fleet) and high value (warehousing) creates a portfolio management challenge that exceeds the capabilities of spreadsheet-based tracking for all but the smallest operators.
Measurement Considerations for Transportation & Logistics
For fleet leases, the service component separation question (IFRS 16.12) is critical. Many fleet contracts bundle the vehicle lease with maintenance, insurance, tyre replacement, and fuel management. The practical expedient (IFRS 16.15) to not separate and treat the entire contract as a lease is frequently applied by class of underlying asset — for example, all passenger vehicles or all heavy goods vehicles. If separation is performed, allocate based on relative standalone prices. Fleet leases typically include residual value risk borne by the lessor, simplifying the measurement to fixed periodic payments.
ROU Asset Depreciation for Transportation & Logistics
Fleet ROU assets present a specific depreciation consideration: vehicles have well-established useful lives, and the ROU asset should be depreciated over the shorter of the useful life and the lease term. For passenger vehicles, a useful life of 4–5 years is common. For heavy goods vehicles, 5–7 years. Trailers may have useful lives of 10–15 years. If the lease term exceeds the useful life (uncommon for vehicles but possible for specialised equipment), depreciate over the useful life unless ownership transfers.
Industry-Specific Considerations
Warehouse and distribution centre leases are typically the highest individual-value leases in a logistics portfolio. These long-term property leases (10–20 years) with CPI escalation create substantial ROU assets and lease liabilities. The lease term assessment for warehouse leases requires consideration of the entity's logistics network strategy — relocation costs, proximity to customers and transport infrastructure, and the availability of suitable alternatives all affect the assessment of reasonable certainty for extension options.
Worked Example: 4-Year Delivery Van Fleet Lease (Single Vehicle)
A logistics company leases a delivery van for 4 years commencing 1 February 2025. Monthly payments are €1,800 payable in arrears (inclusive of maintenance of €300, which is separated). The company's IBR is 5.0%. No initial direct costs or restoration obligations.
Audit Considerations
For fleet-intensive entities, auditors should consider the adequacy of the entity's lease management systems and internal controls over the lease portfolio. ISA 315 (Revised) requires understanding of the entity's control environment for significant account balances. High-volume fleet portfolios may benefit from data analytics and automated testing approaches.