Incremental borrowing rate (IBR)
The rate at which the lessee could borrow funds to obtain a similar asset over a similar term, in the same currency.
Definition
The incremental borrowing rate (IBR) is the rate the lessee would pay to borrow, over a similar term and with similar security, an amount equal to the value of the right-of-use asset in the same economic environment. It is used when the implicit rate in the lease cannot be readily determined — which is almost always the case for lessees.
Why it matters
The IBR is the most commonly used discount rate in practice. It requires documented professional judgement taking into account the lessee's credit quality, the lease term, the currency, and the nature of the asset. Auditors regularly challenge IBR determinations.
In AuditLease
AuditLease stores the IBR for each lease and requires the user to document the basis for the rate. The judgement is surfaced in the statutory accounts note. The future OBR suggestion engine (Phase J) will help suggest a starting point.
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.