You'll have three Transition Methods to choose from when you adopt IFRS 16: Full Retrospective, Modified Retrospective and Simplified. When setting up your Organisation, you'll need to select one of these in your Accounting and Finance Settings. This article outlines the differences between these methods in Nomos One.
If you need any further details or are unsure of the method to select, please speak to your Financial Advisor.
Full Retrospective
Leases are accounted for from original inception as though IFRS 16 has always been applied, including the use of an appropriate discount rate as at onboarding. This will require full historic data entry when onboarding the Agreement. This method will apply to all Agreements in the Organisation.
When you've selected this Transition Method, you'll see your IFRS 16 Reporting commence from the original Commencement Date of the Agreement, rather than the Transition Date.
Example:
- Transition Date: 1 July 2019
- Commencement Date of the Agreement: 1 January 2017
IFRS 16 Reporting would begin from 1 January 2017
Modified Retrospective
This method is classified as Option A in the IFRS 16 standard.
The Liability is valued using a discount rate as at the Transition date (e.g. 1 July 2019 for June year ends) and allows the use of hindsight for Events, such as lease term extension options. The Right-of-Use Asset is measured using the current discount rate and depreciated from the date of original lease commencement. This will require full historic data entry from onboarding.
When you've selected this Transition Method, you'll see your IFRS 16 Reports commence from the original Commencement Date of the Agreement, rather than the Transition Date. This is why this method will require full historic data entry at onboarding.
Example:
- Transition Date: 1 July 2019
- Commencement Date of the Agreement: 1 January 2017
The Daily Calculation Report will begin reporting from 1 January 2017 to show the transition date Right-of-Use-Asset calculation. Other IFRS 16 Reports will begin reporting from 1 July 2019
If you select the Modified Transition Method in the Accounting and Finance page of your Organisation, you'll have the option to select either Modified Retrospective or Simplified on individual Agreements.
Simplified
This method is classified as Option B in the IFRS 16 standard.
The Lease Liability is calculated in the same way as the Modified Retrospective approach. The Asset is then valued as equal to the Liability value at Transition Date (adjusted for any initial direct costs or prepayments) and depreciated prospectively from the Transition Date.
When you've selected this Transition Method, you'll see your IFRS 16 Report commence from the Transition Date of the Agreement, rather than the Commencement Date. For this reason, this method only requires full data entry from Transition date forward when onboarding. Events that occurred prior to the Transition date are not considered in calculations.
Example:
- Transition Date: 1 July 2019
- Commencement of the Agreement: 1 January 2017
IFRS 16 Reporting would begin from 1 July 2019
It's important to note that if your Organisation Default is Simplified and if the Commencement Date of an Agreement is after your Transition Date, you'll need to select the Modified Transition Method on this Agreement.
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