How We Help Property Managers handle IFRS 16 & FRS 102 s.20

Compliance with legal requirements is simply a must in any industry. When it comes to property management and accounting within it, IFRS 16 must be considered. This global accounting standard ensures financial transparency, accuracy and market confidence. It’s incredibly important that property managers understand IFRS 16. Non-compliance can lead to fines, audit challenges, and reputational damage.

If you work for or own a property management company – here’s what you need to know.

Table of contents

Understanding IFRS 16 in Property Management

              What is IFRS 16?

              What is a Right-of-Use Asset?

              Lease Liability Under IFRS 16

How IFRS 16 Impacts Property Managers

              Approaches on how Property Managers can Transition to IFRS 16 Compliance

1. A Full Retrospective Approach to IFRS 16
2. A Modified Retrospective Approach to IFRS 16

IFRS 16 and Subleases

What Is FRS 102

              Reporting Requirements Under IFRS 16

How Our Property Management Software Simplifies Compliance with IFRS 16

Handling Subleases with TRAMPS, BlueBox and o6ix

Accurate Periodic and Audit Reports

Support from Industry Experts

Request a Demo Today

Understanding IFRS 16 in Property Management

What is IFRS 16?

IFRS 16 is an international lease accounting standard that requires publicly listed companies to include leases lasting more than a year on their balance sheets. It has been in effect since 1 January 2019 after being introduced by the International Accounting Standards Board.

IFRS 16 was introduced as a replacement for IAS 17. Under IAS 17, leases were divided into two categories: finance leases, which appeared on balance sheets, and operating leases, which often didn’t. This division meant that many leasing obligations were left off balance sheets, creating gaps in financial transparency.

IFRS 16 replaces this model with a single lessee accounting standard, requiring all leases longer than 12 months (excluding low-value assets) to appear on the balance sheet. This change introduces two key elements:

• Right-of-Use Asset: Represents the lessee’s right to use the leased item.
• Lease Liability: Reflects the obligation to make future lease payments.

By eliminating the distinction between finance and operating leases, IFRS 16 ensures greater transparency in financial statements, making it easier for stakeholders to understand a company’s leasing obligations.

While this standard requires additional effort for compliance, it ultimately benefits businesses by providing stakeholders with clearer and more relevant information. This allows investors and regulators to have more confidence in their decisions now that off-balance sheet accounting practices are removed.

What is a Right-of-Use Asset?

A Right-of-Use Asset under IFRS 16 is the value of a lessee’s right to use a leased asset during the agreed lease term. It is recorded on the balance sheet when the lease begins and represents the benefits the lessee will gain from using the asset.

The initial measurement of the Right-of-Use Asset includes:

• The amount of the initial lease liability.
• Any lease payments are made before the lease begins.
• Initial direct costs incurred by the lessee.
• An estimate of costs for dismantling or restoring the asset, if required.

The value of the Right-of-Use Asset decreases over time as it is used. This depreciation is calculated over the shorter of two periods: the lease term or the asset’s expected lifespan. If the terms of the lease change, such as an extension or adjustment to payments, the value of the asset may also be updated to reflect these changes.

Lease Liability Under IFRS 16

A Lease Liability under IFRS 16 represents the lessee’s obligation to make lease payments over the lease term. This liability is recorded on the balance sheet and calculated using the Discounted Cash Flow (DCF) methodology. Instead of simply adding up all future payments, the DCF method adjusts these payments to reflect their present value, accounting for the time value of money.

Key factors in this calculation include:

• Fixed lease payments over the term.
• Variable payments tied to an index or rate (e.g., inflation adjustments).
• Any expected payments under residual value guarantees.

The lease term is a critical element in determining both the Lease Liability and Right-of-Use Asset. IFRS 16 requires companies to include not just the non-cancellable lease period but also:

• Optional Extensions: If it’s reasonably certain the lessee will extend the lease, these periods are included in the liability calculation.
• Termination Options: Similarly, if it’s unlikely the lessee will terminate the lease early, those periods are also factored in.

This means that businesses must evaluate the likelihood of exercising extension or termination options based on economic incentives, historical patterns, and future plans. With these considerations, a company’s obligations are accurately reflected within the Lease Liability.

How IFRS 16 Impacts Property Managers

As a property manager, it’s important to understand the requirements of IFRS 16 and how this would impact your role. Following IFRS 16, guidelines could be seen to increase the complexity of your financial reporting. With long-term leases being subject to rent reviews and subleasing, there are added layers that need consideration.

Approaches on how Property Managers can Transition to IFRS 16 Compliance

To tackle the complexity property managers have two main approaches: A full retrospective approach or a modified retrospective approach. Each has its level of effort and implications for financial reporting, so choosing a method that aligns with your organisation best is an important consideration to have.

1. A Full Retrospective Approach to IFRS 16

The Full Retrospective Approach is the more rigorous of the two options, requiring property managers to restate prior financial statements as if IFRS 16 had been in place from the beginning of each lease. This means revisiting historical records to:

• Recalculate lease liabilities and right-of-use assets for all relevant leases.
• Adjust previous financial statements to reflect these recalculations.
• Provide comparative figures under IFRS 16 for prior reporting periods.

This approach provides complete consistency across financial periods, offering greater comparability for stakeholders. However, it demands a higher level of detail and resources, as it involves extensive historical data analysis and adjustments.

2. A Modified Retrospective Approach to IFRS 16

The Modified Retrospective Approach simplifies the transition by applying IFRS 16 from the transition date without restating prior financial periods. Under this method:

• Lease liabilities and right-of-use assets are calculated based on the remaining lease payments as of the transition date.
• No adjustments are made to previously reported financial statements.
• Instead, a one-time cumulative adjustment is applied to the opening balance of equity at the date of transition.

This approach is less resource-intensive and easier to implement, making it the preferred choice for property managers looking for a smoother and more practical transition to compliance.

IFRS 16 and Subleases

When property managers sublease an asset, the Right-of-Use Asset recorded under the original head lease must be adjusted. This adjustment reflects the portion of the asset that is subleased, separating it from the part still directly used by the property manager.
For example:

• If a property manager subleases a portion of an office building, they must reduce the right-of-use asset to account for the area subleased.
• This change also affects the lease liability, as it adjusts the future lease payments attributable to the subleased space.

Additionally, subleases must be treated as independent arrangements under IFRS 16. This involves:

• Classifying the sublease as either a finance lease (if it transfers substantial risks and rewards of ownership) or an operating lease.
• Reporting the sublease’s financial implications separately from the head lease.
• Ensuring compliance with the head lease while meeting the reporting requirements for the sublease.

Accurate tracking and reporting of subleases ensure that property managers remain compliant and provide stakeholders with clear financial insights. This level of accuracy and compliance can be made much easier through property management software.

What is RFS 102

FRS 102 is the financial reporting standard applicable in the UK and Republic of Ireland. It is applicable to entities in the UK that have not adopted the IRFS’s and are not able to take advantage of the reduced disclosure alternatives. FRS 102 s20 will be adopting very similar lessee accounting requirements to IFRS 16 from the 1^st January 2026.

Reporting Requirements Under IFRS 16

IFRS 16 changes how lease costs are presented in the Profit & Loss account. Instead of recognising straight-line operating lease expenses, costs are split into depreciation of the Right-of-Use Asset and interest on the lease liability. Depreciation is then reported as an operating expense, while interest is listed as a financing cost.

This creates a front-loaded expense pattern, as interest is higher at an earlier point within the lease term.

Balance Sheet Changes under IFRS 16

The most visible impact of IFRS 16 is on the balance sheet:

• Lease Liabilities: Represent the present value of future lease payments, increasing total liabilities.
• Right-of-Use Assets: Reflect the economic benefit of using leased assets, recorded under non-current assets.

This transparency provides stakeholders with a clearer view of the company’s leasing commitments and overall financial position.

Periodic Reporting

IFRS 16 introduces more detailed reporting requirements, including:

• Regular updates on depreciation, rent expenses, and interest on lease liabilities.
• Disclosure of opening and closing balances for lease liabilities and right-of-use assets.
• Notes on any significant changes to lease terms, such as extensions, terminations, or rent reviews.

When reports follow this structure they ensure compliance and improve the quality of financial disclosures. This ultimately leads to stakeholders having a better understanding of the company’s leasing arrangements.

How Our Property Management Software Simplifies Compliance with IFRS 16

Our property management software eliminates the need for manual calculations by automating the entire process of determining lease liabilities and right-of-use assets. Using built-in tools and industry-compliant methodologies, the software:

• Applies Discounted Cash Flow (DCF) calculations accurately to measure lease liabilities.
• Automatically tracks rent reviews, escalations, and lease modifications, ensuring accurate adjustments to lease liabilities and right-of-use assets.
• Handles complex lease structures across multiple properties or portfolios, saving time and minimising the risk of human error.

Robust and accurate automation is what makes our property management software really stand out. It ensures property managers can focus on strategic tasks while maintaining compliance with IFRS 16 reporting requirements.

Supporting both Retrospective Methods of Adoption

Whether your organisation opts for the Full Retrospective Approach or the Modified Retrospective Approach discussed earlier, our property management software provides the flexibility to support either transition method seamlessly.

For a Full Retrospective Transition, it enables recalculation of historical lease data, adjusts prior financial statements, and generates comparative reports to meet IFRS 16 requirements. Similarly for the Modified Retrospective Approach, the process is simplified by recalculating lease liabilities and right-of-use assets as of the transition date and applying opening balance adjustments directly to equity.

You can trust our property management software to ensure every lease transition is documented and aligned with regulatory standards, no matter which approach is chosen.

Handling Subleases with TRAMPS, BlueBox and o6ix

Our software is split into three main products:

1. TRAMPS is built for commercial property management, and still the property management system of choice for around 80% of the UK’s top managing agents.
2. BlueBox is configured specifically for both housing associations and the owner/investor sector, allowing you to handle service charge accounting with the same efficiency of a dedicated managing agent.
3. o6ix is perfect for corporate occupiers, and used by some of the UK’s largest and most complex corporate estates.

No matter which version of our property management software you are using, you can expect the same level of power and reliability. All three products provide you with a single platform for managing both head leases and subleases, ensuring all of your obligations are accurately tracked.

Software that Provides Accurate Periodic and Audit Reports

You want to ensure that your software provides an exceptional financial reporting process. Our property management software allows you to easily:

• Generate periodic reports that include asset depreciation, lease liability amortisation, and Profit & Loss figures to meet IFRS 16 disclosure requirements.
• Provide detailed audit trails that track all valuations and lease histories, making it straightforward to verify compliance during internal or external audits.
• Chose from over 200 standard reports, with the ability to create custom reports using the integrated report writer to meet unique business needs.

Ultimately when you come to us at Trace Solutions, we always ensure you have robust, reliable, and trustworthy data. At the same time, we make sure our software is easy and intuitive to use, keeping you at full efficiency at all times. Our cloud-based interface, Mojo, has made it easier than ever to streamline your property management.

Support from Property Management Experts

Customer service was and still is a core belief behind what makes Trace Solutions different within the property management software market. If you’re worried about the onboarding process and after – don’t be. Trace Solutions offers outstanding client support with a live help desk, dedicated account managers, and comprehensive onboarding.

We always want to ensure that you’re use of our software is as smooth and productive as possible.

Put Compliance Concerns in the Past

With our property management software, the complexities of IFRS 16 start to look much simpler. Accurate and robust automation, simplifying your sublease management, and periodic reporting are just a few ways in how your property management processes can become so much simpler. If you’re considering new solutions for your business, book a demo. Seeing our product in action and getting in touch with our team will answer all of your questions.