AASB 16 is the Australian equivalent of IFRS 16; NZ IFRS 16 is the New Zealand equivalent. Both standards require on-balance-sheet recognition for leases over 12 months, and both have been mandatory since 2019. Full compliance means accurate identification of all leases (including embedded leases), correct ongoing calculations, a complete audit trail for every modification, and disclosure outputs that agree to the general ledger. Most organisations that adopted the standard in 2019 have at least one gap they have not yet found.
This guide is a working self-assessment tool for finance controllers, financial accountants, and CFOs who are responsible for AASB 16 or NZ IFRS 16 compliance. It is not a re-explanation of the standard itself. If you need that foundation first, the complete IFRS 16 / AASB 16 guide covers the standard from first principles. Updated June 2026.
LOIS identifies five distinct layers of compliance that organisations must maintain concurrently: register completeness, calculation accuracy, GL alignment, audit trail integrity, and disclosure completeness. Passing an audit in year one does not mean the position is still clean in year five. Each layer degrades independently when processes, people, or portfolios change.
1. Completeness of the lease register
Every contract that meets the IFRS 16 / AASB 16 definition of a lease must be on the register, including embedded leases in service and outsourcing contracts. A lease register that reflects only the leases the property team knows about is not complete. The standard does not distinguish between formal property leases and lease components buried in IT service agreements, logistics contracts, or equipment hire arrangements.
2. Accuracy of ongoing calculations
The initial recognition calculation is only the starting point. Every CPI adjustment, rent review, extension, termination, and scope change triggers a remeasurement that must be processed correctly and on time. A lease that was perfectly calculated at commencement can produce material misstatements two years later if modifications are not actioned.
3. General ledger alignment
The lease subledger must agree to the balances posted in the general ledger at every reporting date. This sounds straightforward but breaks down quickly when journal entries are manually keyed, when the ERP and the lease register run on different month-end cycles, or when prior-period adjustments are posted without updating the underlying lease schedule.
4. Audit trail and controls
Compliance requires the right numbers and the ability to demonstrate how you arrived at them: every modification, remeasurement, and judgement call needs a documented, timestamped record. A finance controller who can show the auditor exactly when a lease extension was processed, who approved it, and what the IBR was at that date is in a fundamentally different position to one who can only show the current balance. Auditors test controls alongside outputs, and a correct number with no traceable process behind it will generate findings regardless.
5. Disclosure completeness
Paragraphs 51 to 60 of IFRS 16 (replicated in AASB 16 and NZ IFRS 16) set out lessee disclosure requirements. These include the carrying amount of right-of-use assets by class, lease liability maturity analyses, depreciation charges, interest expense, short-term and low-value lease payments, and variable lease payments. All of these must be present, correct, and consistent with the rest of the financial statements.
LOIS structures its compliance reviews around these ten checkpoints. Work through each one and assess your current process honestly. A "yes" means you have a documented, repeatable process in place. A "not sure" is a gap worth investigating before your next audit cycle.
Lease completeness: all contracts reviewed for embedded leases
Have you reviewed service, outsourcing, logistics, and IT contracts for lease components? Embedded leases are one of the most consistently underidentified compliance gaps. The standard requires you to assess whether a contract contains a lease: whether it conveys the right to control the use of an identified asset for a period of time. A supplier that provides you with a dedicated piece of equipment may constitute a lease regardless of how the contract is labelled. Your review process should be documented and refreshed whenever material new contracts are entered into.
Correct incremental borrowing rate applied per lease
The incremental borrowing rate (IBR) should reflect the rate the lessee would pay to borrow over a similar term to purchase an asset of similar value in a similar economic environment. A single IBR applied across all leases in the register is almost certainly incorrect. Leases in different currencies, asset classes, and start dates should carry different rates. Each modification event requires the IBR to be reassessed, and if you are using a rate that was set at adoption in 2019 and never updated, material misstatement is likely.
CPI and indexation remeasurements actioned
When lease payments are linked to an index like CPI, the liability must be remeasured when the new payments take effect, not when CPI is announced. Many organisations with annual CPI reviews are either processing these late, using the wrong trigger date, or missing them entirely because the property team does not communicate rent review outcomes to finance. This is consistently one of the checkpoints where spreadsheet-based processes fail most visibly. For a detailed walkthrough of how the accounting works, see our guide to CPI adjustments under IFRS 16 and AASB 16.
Lease modifications recorded with new calculations
Every contracted lease extension, scope reduction, early termination, or change in payments is a modification event under the standard. Each one requires a formal remeasurement: a new lease liability present value, a revised ROU asset carrying amount, and an updated amortisation schedule. A lease that runs past its original end date with an executed contracted extension is wrong in the accounting records from that point forward if no formal modification has been processed. When a contracted lease extension is executed but no formal modification is processed in the accounting system, the lease data is incorrect from that point forward.
Depreciation and interest charges separately presented in P&L
Under AASB 16 and NZ IFRS 16, the ROU asset depreciation and the interest charge on the lease liability are presented separately in the income statement. They cannot be combined or presented as a single lease rental expense, which was the treatment under the previous standard. This distinction matters for EBITDA calculations, covenant reporting, and financial ratio analysis. If your P&L still reports a line called "operating lease expense" rather than split depreciation and interest lines, the presentation does not comply with the standard.
GL reconciliation: lease subledger agrees to balances
Software with proper GL integration can produce a locked down periodic report that agrees the lease subledger to the GL balances automatically, and thus avoiding a detailed reconciliation process. If your process requires someone to manually reconcile a spreadsheet against the trial balance each month, you are carrying reconciliation risk. Discrepancies that are cleared with a top-side journal rather than traced to their source compound across periods and become increasingly difficult to unwind by audit time.
Full audit trail for every modification and judgement
Auditors test controls, not just numbers. For every modification event (every remeasurement, every IBR reassessment, every early termination) there should be a documented record showing who made the change, when, what the values were before and after, and on what basis the judgement was made. If this information exists only in a version-controlled spreadsheet (or not at all), you have a controls gap regardless of whether the numbers are correct. The Australian Securities and Investments Commission (ASIC) has flagged lease accounting as a focus area in its financial reporting reviews (asic.gov.au).
Disclosure notes present and complete (IFRS 16 paragraphs 51-60)
Paragraphs 51 to 60 of IFRS 16 (incorporated directly into AASB 16 and NZ IFRS 16) specify the minimum lessee disclosures. These include the carrying amount of ROU assets by class of underlying asset, lease liability maturity analyses (split into less than one year, one to five years, and more than five years), depreciation and interest charges recognised in the period, short-term and low-value lease payments recognised as an expense, and any variable lease payments not reflected in the liability measurement. Each of these must appear in the notes, must be produced from the lease data, and must agree to the figures in the primary statements. A disclosure note produced manually from a summary spreadsheet is a risk waiting to surface.
Short-term and low-value exemptions applied consistently
Electing to use the short-term lease exemption (leases of 12 months or less) or the low-value asset exemption requires a clear, documented accounting policy that is applied consistently across the portfolio. Under AASB 16 and NZ IFRS 16, the low-value threshold is assessed based on the value of the underlying asset when new. An organisation that has applied these exemptions inconsistently, or that has not reassessed whether previously short-term leases have rolled into longer-term arrangements, may have both an accounting policy documentation problem and an incorrect register.
Accounting policies documented and applied consistently
The choices you made at transition (the low-value threshold, the short-term election, the IBR methodology, how you assess lease term including reasonably certain extension options) should be captured in a formal accounting policy that is applied consistently period to period. A policy that exists only in the memory of the person who originally implemented the standard is a succession risk and an audit risk. Auditors will ask to see it. The Australian Accounting Standards Board (aasb.gov.au) and New Zealand's External Reporting Board (xrb.govt.nz) both publish guidance on policy documentation requirements.
Organisations using spreadsheets are most likely to have gaps at checkpoints 3, 4, 6, and 7: the four that depend on timely communication of events, accurate remeasurement calculations, and traceable records. These are also the checkpoints that auditors probe most directly. LOIS automates all ten checkpoints as part of standard platform operation.
LOIS sees the same four findings surfaced repeatedly across compliance reviews, and all four align with ASIC's published financial reporting focus areas for Australian and New Zealand entities. They are process failures, not gaps in understanding the standard: incomplete registers, unprocessed modifications, missing audit trails, and disclosure notes that do not agree to the primary statements. The CA ANZ post-implementation review (2025) found that over 50% of Chartered Accountants in Australia and New Zealand reported moderate to significant impact from the ongoing complexity of AASB 16 and NZ IFRS 16, years after initial adoption.
1. Incomplete lease registers. Auditors routinely find leases that are missing from the register, most commonly embedded leases in service contracts and short-term arrangements that have in practice rolled beyond 12 months. The contractual rolling structure does not determine the conclusion; the honest assessment of expected use does.
2. Unprocessed or incorrectly processed modifications. Lease modifications are the single most common source of material misstatement in established AASB 16 / NZ IFRS 16 positions. Extensions are executed by the property team and not communicated to finance, or CPI adjustments are applied to the rent payment but not remeasured in the accounting records.
3. Absence of a complete audit trail. Many organisations can produce the right numbers but cannot demonstrate how they arrived at them. Without a timestamped record of every change, every IBR decision, and every judgement about lease term, the controls framework fails even when the output is correct. ASIC has specifically cited this in its financial reporting reviews (asic.gov.au).
4. Disclosure notes not reconciling to the primary statements. Notes produced from a summary spreadsheet, rather than directly from the lease accounting system, frequently contain figures that do not agree to the balance sheet or income statement. This inconsistency within the financial statements is one of the most straightforward findings for an auditor to raise.
When this self-assessment surfaces a gap, LOIS recommends three steps before making any corrections: quantify the financial impact across the balance sheet and income statement, identify the root-cause process failure rather than the symptom, and then assess whether your current tools can prevent the same gap reappearing next period.
Quantify the impact first
Before making any corrections, calculate what the gap means in dollar terms for the balance sheet, income statement, and disclosures. This tells you whether you are dealing with an immaterial process deficiency or a misstatement that needs to be corrected and disclosed. Some gaps can be corrected prospectively with improved processes; others require prior-period adjustment. Getting this assessment right, ideally with CA-qualified lease accounting expertise behind it, determines the appropriate response.
Address the root cause, not the symptom
A gap in checkpoint 4 (unprocessed modifications) is a process gap, not a calculation gap. The fix is a workflow that ensures property and finance communicate modification events in real time, not a one-off catch-up exercise. Similarly, a gap in checkpoint 6 (GL reconciliation) usually points to a journal production process that is not integrated with the lease register. Fixing the number in isolation without fixing the process means the same gap reappears next period. Our IFRS 16 audit preparation checklist covers how to structure a remediation that holds up to audit scrutiny.
Consider whether your current tools can sustain ongoing compliance
If multiple checkpoints in this self-assessment return a "not sure" or a "no," the underlying issue is usually that the tools in use (typically spreadsheets) cannot reliably maintain compliance across periods. Spreadsheets do not automatically trigger CPI remeasurements, do not prevent someone from editing a formula, and do not generate the audit trail that auditors now expect. A structured assessment of whether your current approach is sustainable is worth completing before the next reporting period opens. LOIS offers an IFRS 16 health check specifically for this purpose.
Is AASB 16 the same as IFRS 16?
AASB 16 is Australia's adoption of IFRS 16, issued by the Australian Accounting Standards Board (aasb.gov.au). The substance and requirements are identical for for-profit entities. The main difference is that AASB 16 includes specific public sector guidance, including the concessionary lease measurement policy under AASB 2018-8. For practical compliance purposes, organisations preparing under AASB 16 should apply the same compliance disciplines described in this guide.
What is NZ IFRS 16?
NZ IFRS 16 is New Zealand's adoption of IFRS 16, issued by the New Zealand External Reporting Board (xrb.govt.nz). Like AASB 16, it is substantively identical to IFRS 16 for for-profit entities and has been mandatory for financial reporting periods beginning on or after 1 January 2019. New Zealand entities preparing general purpose financial statements under NZ IFRS must comply with NZ IFRS 16. The compliance requirements in this guide apply equally to Australian and New Zealand organisations.
How do I identify embedded leases in service contracts?
An embedded lease exists when a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Three questions determine whether a lease component is present: Is there an identified asset (specific, not fungible)? Does the customer obtain substantially all the economic benefits from its use? Does the customer direct how and for what purpose the asset is used? If all three answers are yes, the arrangement contains a lease under AASB 16 and NZ IFRS 16. Common examples include dedicated IT infrastructure, specified vehicles in fleet management contracts, and dedicated warehouse space in logistics agreements.
What do paragraphs 51 to 60 of IFRS 16 require?
Paragraphs 51 to 60 specify the minimum disclosure requirements for lessees. The key required disclosures include: the carrying amount of ROU assets by class; lease liability maturity analysis (under one year, one to five years, over five years); depreciation of ROU assets; interest expense on lease liabilities; short-term lease payments recognised in the period; low-value asset lease payments recognised in the period; variable lease payments not included in the liability measurement; and any significant judgements, assumptions, and discount rates applied. Each of these must be present and reconcile to the primary financial statements.
How often should I run this self-assessment?
Running a structured self-assessment once per year, ideally before the audit cycle opens, is a reasonable minimum. More frequent reviews make sense when the portfolio is growing, when the organisation has had significant staff turnover in the finance function, or when there have been material changes to leasing activity such as a large property rationalisation or fleet renewal. The LOIS CA-qualified team recommend a formal compliance review at least annually and a lighter-touch checkpoint review at each half-year close.
If this self-assessment surfaces gaps in your process, the LOIS team can help you quantify the impact and define a remediation path. Start with an IFRS 16 health check, or talk to us about the managed service for teams who need CA-qualified expertise behind their monthly close.
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