Valuation for lease accounting: Focus on Incremental Borrowing Rate
Compliance, Calculation, and Reporting under IFRS 16 Lease Accounting Standard
What is IFRS 16 and incremental borrowing rate (IBR)
IFRS 16 requires lessees to recognize most leases on the balance sheet, recording a right-of-use asset and a corresponding lease liability.
Lease liabilities must be discounted using the lessee’s Incremental Borrowing Rate when the interest rate implicit in the lease is not readily available.
What are the challenges
Determining the appropriate IBR across lease portfolios can be complex, especially for entities without readily observable borrowing costs.
Modelling – There are no universally applicable models for IBR, as the rate is entity-specific and influenced by jurisdictional and market conditions. Robust valuation expertise is required to ensure objectivity and consistency.
Complexity of risk factors - The assessment must incorporate a range of risk factors, including country-specific risk, sector risk, entity-specific credit risk, liquidity risk, and be adjusted for the term structure of the lease and any underlying collateral, to ensure a defensible, market-aligned discount rate.
Regulatory Compliance – Companies need to ensure full compliance with regulatory requirements, including disclosures that adequately inform investors about the impact of share-based payments on financial performance.
What we can offer
We provide technical expertise in the valuation and modelling of leases under IFRS 16, including the determination of IBR, lease discounting, and assessment of key assumptions based on market evidence.
Leveraging our know-how and advanced valuation methodologies, we support you in determining IFRS-compliant IBRs and in calculating right-of-use assets and lease liabilities. We ensure that your lease valuations, assumptions and disclosures comply with all relevant accounting and regulatory requirements.
We offer dedicated workshops and technical sessions for finance, treasury, and controlling teams, helping your organization deepen its understanding of IFRS 16 mechanics, valuation techniques, data requirements and documentation standards.
What value you can gain
Our expertise ensures that your lease valuations are aligned with the latest IFRS 16 guidance, enhancing transparency, audit-readiness, and confidence in your financial reporting.
Our specialists advise on all key aspects from data gathering and IBR determination to valuation modelling, assumption review and governance design - supporting you through both implementation and ongoing compliance cycles.
