Option assessment
The process of evaluating whether a renewal, extension, purchase, or termination option is reasonably certain to be exercised.
Definition
Option assessment is the judgement process required under IFRS 16 and amended FRS 102 to determine whether lease options should be included in the measurement of the lease term and lease liability. For renewal and extension options, the question is whether the lessee is reasonably certain to exercise the option. For termination options, the question is whether the lessee is reasonably certain not to exercise it. Relevant factors include the significance of any leasehold improvements, the importance of the asset to operations, and the relative cost of relocating.
Why it matters
Option assessments are one of the most judgement-intensive areas of lease accounting and a frequent focus of audit scrutiny. The outcome directly determines the lease term, which in turn drives the liability and asset measurement.
In AuditLease
AuditLease provides dedicated judgement fields for each option type, capturing the management rationale alongside the assessment outcome — supporting audit review and evidence requirements.
Related terms
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.