Renewal option
A contractual right for the lessee to extend the lease beyond its non-cancellable period.
Definition
Where a lessee has the right to extend a lease and is reasonably certain to exercise that right, the optional extension period is included in the lease term used for accounting purposes. This increases both the lease liability and the ROU asset at commencement.
Why it matters
Renewal options are one of the most judgement-intensive aspects of lease accounting. The assessment must be documented, and reassessed on a significant event or significant change in circumstances within the control of the lessee, such as a business decision to remain in premises.
In AuditLease
AuditLease lets you record a supporting rationale for your renewal option judgement on the lease. The key judgements section of the statutory accounts note counts the leases with a renewal option rationale and shows one representative rationale, and the note raises a blocking warning for an active lease with a renewal option and no rationale recorded.
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.