Discount rate
The interest rate used to calculate the present value of future lease payments.
Definition
The discount rate converts future lease payments into their present value equivalent. Under IFRS 16 and amended FRS 102, the rate to use is the rate implicit in the lease, or — if that cannot be readily determined — the lessee's incremental borrowing rate. The discount rate has a direct and material impact on the size of the lease liability and ROU asset.
Why it matters
The discount rate is the single biggest driver of lease liability values. It requires documented professional judgement and is a common area of auditor inquiry. Rates should be set at lease commencement and updated on remeasurement events.
In AuditLease
AuditLease requires a discount rate for every lease. The rate, its basis, and the user's judgement rationale are stored and surfaced in the statutory accounts note and audit evidence.
Related terms
Official sources
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence — so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.