Termination option
A contractual right for the lessee to end the lease before the end of the non-cancellable period.
Definition
Where a lessee has the right to terminate a lease early, the lease term for accounting purposes includes the period after the earliest termination date only if the lessee is reasonably certain NOT to exercise the option. If it cannot say that, the term ends at the earliest date the option can take effect.
Why it matters
A termination option the lessee is reasonably certain not to exercise extends the accounting lease term and increases the lease liability. The judgement must be clearly documented.
In AuditLease
AuditLease captures termination option details and the user's reasonably certain assessment, and the key judgements section of the statutory note counts the leases with a termination option rationale and shows one representative rationale.
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.