Short-term lease exemption
An accounting policy election that allows leases of 12 months or less, with no purchase option, to be kept off the balance sheet.
Definition
IFRS 16 and amended FRS 102 allow lessees to elect not to recognise a right-of-use asset and lease liability for a short-term lease: one with a term of 12 months or less at the commencement date that does not contain a purchase option. Instead, lease payments are recognised as an expense on a straight-line basis or another systematic basis. The exemption is an accounting policy choice applied by class of underlying asset.
Why it matters
The exemption can simplify accounting for rolling short-term arrangements. However, it must be applied consistently to all leases of that asset class, and the policy must be disclosed.
In AuditLease
AuditLease records the short-term exemption as a flag on each lease, refuses it where the lease contains a purchase option, and holds the rationale as a judgement on the lease. Applying the election consistently across a class of asset is for the preparer to do. Exempted leases are excluded from liability and ROU calculations but are included in the statutory note disclosure of short-term lease expense.
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.