If you have a Break Clause (Option to Break) in your contract that you want represented on your Agreement for IFRS 16 Reporting purposes, you can follow this guide to record this.
Entering a Break Clause for IFRS 16 Reporting
When entering your new Agreement:
- On the Events page of the Agreement Wizard, expand the Initial Term and Renewal section
- Add in the duration of the break clause as your Initial Term
Example: This contract has a break clause/option to break after 1 year from the Commencement Date.
- Click Add Renewal, then adjust the Renewal term to end at the date the initial term in your contract is due to expire
Example: The initial term of this contract is five years. The option to break is after one year. The Renewal will expire five years after the Commencement, but the term will be entered as 4 years because of the option to break at one year.
- Continue to click Add Renewal to add in the remainder of your Renewal options in your Agreement.
Including your Break Clause in IFRS 16 Reporting
After you've finished onboarding your Agreement, the next step is to record your assumptions around exercising your break clause using the Expected Number of Renewals functionality in the IFRS 16 Questionnaire.
A Break Clause as entered above is represented on your Agreement as a Renewal, so you'll use the Expected Number of Renewals functionality in the Initial 1FRS 16 Questionnaire and Settings Change Questionnaire to make any changes around your expectation of exercising your option to break:
Selecting zero (0) in the Expected Number of Renewals corresponds to an intention to exercise affirmatively your option to break and exit the contract.
Selecting one (1) in the Expected Number of Renewals corresponds to an intention not to exercise your option to break and to stay for the full initial term of your Agreement.
Selecting the final option you can see in the Expected Number of Renewals corresponds to an intention to take up all Renewals and stay until the Final Expiry of your Agreement.
Any subsequent Renewals added to your Agreement will correspond to the remaining available options for selection.
Whichever selection you've made at Commencement/Transition, if you've changed your assumption after Commencement/Transition, you can reflect this change by updating the Expected Number of Renewals functionality in the IFRS 16 Settings Change Questionnaire.
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