Australian and New Zealand auditors examining IFRS 16 and AASB 16 compliance consistently focus on six areas: lease completeness, modification remeasurements, GL reconciliation, disclosure quality, CPI adjustments, and IBR documentation.
Australian and New Zealand auditors examining IFRS 16 and AASB 16 compliance consistently focus on six areas: completeness of the lease register, evidence of modification remeasurements, reconciliation of the lease subledger to the general ledger, quality of required disclosures, CPI adjustment processing, and documentation of the incremental borrowing rate. LOIS automates controls across all six areas as part of its standard operation. Updated June 2026.
Most deficiencies found in practice come from spreadsheet-based processes where one or more of these areas lacks a reliable control. An organisation that identifies a gap in June has time to address it before year-end, while one that identifies the same gap in October does not.
ASIC lists "the lease accounting requirements and the impairment of lessee right-of-use assets" as an enduring financial reporting focus area for Australian entities. This is not a one-year focus prompted by IFRS 16 adoption; it appears on ASIC's focus areas page alongside asset impairment and revenue recognition as a permanent area of scrutiny.
The ASIC focus covers listed entities, large proprietary companies, and registrable superannuation entities. In New Zealand, the Financial Markets Authority (FMA) published its Financial Statements Monitoring Insights 2022-2025 in April 2026, with a continuing focus on significant accounting judgements, estimation uncertainty, and the quality of accounting records that support financial statement disclosures. Source: asic.gov.au; fma.govt.nz.
IFRS 16 and AASB 16 compliance remains an active audit focus because lease portfolios are not static, and LOIS consistently sees finance teams who completed their initial adoption in 2019 still carrying process gaps years later. Leases modify, CPI adjustments apply, and portfolios grow, while spreadsheets accumulate compounding errors with each change.
The IASB launched its formal Post-Implementation Review of IFRS 16 in June 2025, inviting feedback on how the standard is working in practice. Feedback discussed at the IASB's April 2026 meeting confirmed that disclosure quality and cash flow presentation remain live issues across jurisdictions. In Australia, ASIC lists lease accounting requirements as an enduring surveillance focus: it appears in every annual review cycle, not just years of initial adoption. In New Zealand, the FMA's April 2026 monitoring report continued its emphasis on the quality of accounting records underpinning financial statement disclosures. Estimation judgements are a standing area of FMA scrutiny.
The practical implication: auditors examining a June 2026 or December 2026 financial report are applying the same scrutiny they applied in 2020, with the additional expectation that processes are now mature and controls are embedded. A finance team that is still relying on the approach it used for initial adoption, without systematic controls for ongoing modifications and adjustments, is likely to have gaps in the six areas below.
Australian and New Zealand auditors reviewing IFRS 16 and AASB 16 compliance focus their testing on six areas where spreadsheet-based processes most commonly fail: lease completeness, modification remeasurements, GL reconciliation, disclosure quality, CPI adjustment timing, and IBR documentation. LOIS builds controls for each area into its standard operation. Each area below covers what auditors check, the most common deficiency, and how LOIS addresses it.
Lease completeness: are all leases captured, including embedded ones?
Auditors test the lease register for completeness by examining contracts across the business: service agreements, IT infrastructure contracts, equipment hire arrangements, outsourcing agreements, and building services. Embedded leases (arrangements where a lease is contained within a broader service contract) are the most common source of omissions in practice.
Most common deficiency: IT contracts, site access agreements, and equipment maintenance arrangements that contain an identified asset and grant the right to control its use are leases under IFRS 16 paragraph 9. Finance teams that reviewed contracts at initial adoption but have not assessed new contracts signed since 2019 are routinely missing additions to the register.
How LOIS addresses it: LOIS holds a centralised lease register against which new contracts can be assessed and loaded. The platform supports the lease identification workflow and maintains a complete, timestamped record of all leases recognised, with documentation of recognition decisions. See our complete IFRS 16 guide for the identification framework.
Modification remeasurements: has every change to a lease triggered a recalculation?
Auditors trace lease modifications (extensions, terminations, rent changes, scope changes, and CPI adjustments) back to the corresponding remeasurement entries. Under IFRS 16, each modification event requires a recalculation of the right-of-use asset and lease liability, a reassessment of the incremental borrowing rate (where relevant), and updated amortisation schedules.
Most common deficiency: Spreadsheet-based processes capture the initial lease correctly but miss subsequent modifications. A property lease extended mid-term, a vehicle fleet with monthly additions, or a CPI adjustment applied at the wrong date will each produce a carrying value that drifts from the correct IFRS 16 position. The audit evidence trail for each modification event is absent.
How LOIS addresses it: LOIS generates an immutable, timestamped record for every modification, including the values before and after, the modification type, and the updated schedules. Every remeasurement is processed at the transaction level, with the updated values carrying through to the amortisation schedule and journal outputs.
GL reconciliation: does the lease subledger agree to the balance sheet?
Auditors request a reconciliation of the lease subledger to the right-of-use asset and lease liability balances on the balance sheet. The subledger total must agree to the general ledger, with any differences explained and documented. This is one of the most reliable predictors of overall data quality in a lease accounting process.
Most common deficiency: Manual reconciliation in spreadsheets across periods is one of the primary causes of close overruns. Journals produced from one spreadsheet are posted to the GL by a separate process, and the two sources drift over time. The reconciliation gap is often discovered for the first time when the auditor requests it.
How LOIS addresses it: LOIS has a fully autonomous general ledger integration. Software with proper GL integration can produce a locked-down periodic report that agrees the lease subledger to the GL balances automatically, thus avoiding a detailed reconciliation process. The LOIS platform produces this report as standard output each month-end. For more on what an audit-ready subledger looks like, see what happens when lease data is wrong in an audit.
Disclosure quality: are all required items present and correctly calculated?
IFRS 16 paragraphs 51 to 60 set out the disclosure requirements for lessees. Auditors test for completeness (all required line items present), accuracy (the maturity analysis uses undiscounted payments, depreciation and interest are separately disclosed), and consistency with the face of the financial statements. The IASB's 2025 post-implementation review found that only 58% of required disclosure items were complied with in early IFRS 16 years, confirming this remains the area of highest non-compliance.
Most common deficiency: The maturity analysis is prepared using discounted payments (incorrect: IFRS 16 requires undiscounted) or short-term lease and low-value asset expenses are omitted. Cash flow disclosures are incomplete, inconsistent in presentation across periods, or disaggregated differently from the prior year without explanation.
How LOIS addresses it: LOIS generates the full IFRS 16 disclosure suite from the same underlying data that produces the journals and balance sheet figures: maturity analyses on an undiscounted basis, carrying amount movements by asset class, depreciation and interest breakdown, and short-term and low-value payment disclosures. Full detail on each required disclosure is covered in our guide to IFRS 16 disclosure requirements for lessees.
CPI adjustment processing: is the remeasurement timed correctly?
Leases with rent indexed to the Consumer Price Index require a remeasurement of the lease liability when the new payment amount takes effect, not at the date CPI is announced. Auditors check that remeasurements are processed at the correct date, using the correct payment amounts, and that the resulting changes to the right-of-use asset and lease liability are reflected in the period they occur.
Most common deficiency: The organisation processes the CPI remeasurement when it receives the CPI announcement or when it updates its spreadsheet, rather than at the first payment date at the new rate. The timing error creates a mismatch between the lease liability and the actual payment schedule that auditors will identify when tracing payments to the schedule.
How LOIS addresses it: LOIS supports the correct timing of CPI remeasurements, with automated alerts for upcoming CPI adjustment events and processing tied to the payment date rather than the announcement date. Our detailed guide to CPI adjustments under IFRS 16 covers exactly how the accounting works.
IBR documentation: is the rate used for each lease defensible?
The incremental borrowing rate (IBR) is the rate at which the lessee would borrow to acquire an asset of similar value in a similar economic environment. Auditors request documentation of the IBR applied to each lease at commencement and at each subsequent modification event. The rate must be determined consistently, documented at the time it is applied, and updated when a remeasurement is required.
Most common deficiency: A single IBR was determined at the time of initial adoption in 2019 and applied to all leases since, without reassessment on modification events. Or the rate is documented in a memo that cannot be traced to individual lease records. Neither approach stands up to auditor scrutiny, particularly in a period of significant interest rate movement.
How LOIS addresses it: LOIS stores the IBR at the individual lease level, linked to the commencement or modification event that triggered it. Every rate is traceable, timestamped, and auditable alongside the calculation it drives. CA-qualified LOIS experts support clients in determining and documenting rates that are defensible under audit scrutiny.
LOIS works alongside finance teams who have already experienced audit findings in one or more of these six areas, and the deficiencies in the table below reflect those conversations. Each one is a real outcome from a real audit process, not a theoretical scenario constructed to illustrate a rule.
| Area | What auditors find | Consequence |
|---|---|---|
| Lease completeness | IT contracts or site access agreements not assessed for lease content | Missing ROU assets and liabilities; possible prior-period restatement |
| Modification remeasurements | Lease extensions processed as operating expenses rather than modifications | Understated lease liability; incorrect depreciation and interest for the period |
| GL reconciliation | Subledger total does not agree to GL balance; no reconciliation on file | Qualified audit opinion; material misstatement in financial statements |
| Disclosure quality | Maturity analysis based on discounted payments; short-term lease expenses omitted | Non-compliant financial statements; ASIC or FMA enquiry for listed entities |
| CPI adjustments | Remeasurements dated to CPI announcement, not first payment date | Incorrect carrying values; payment schedule inconsistency throughout the year |
| IBR documentation | Single rate applied to all leases regardless of term, asset class, or modification date | Indefensible discount rate; lease liability materially misstated if rates have moved |
The consequences in the table above are not edge cases. Finance teams relying on spreadsheets for one or more of these areas are routinely exposed to at least one of these outcomes each audit cycle. Our full-length post on what happens when lease data is wrong in an audit covers the downstream consequences in detail.
Closing IFRS 16 and AASB 16 compliance gaps before the audit starts requires a structured review against each of the six areas, and LOIS recommends finance teams run this review no later than three months before their balance date. Identifying a gap in June leaves time to fix it; identifying the same gap in October, when the auditor has already requested the evidence, does not. The six areas are not independent. A finance team that has not embedded systematic controls for lease modifications will typically also have IBR documentation gaps and CPI timing errors, because the process that would catch each of those issues is the same one that is missing.
A structured review means working through each of the six areas specifically, not a general assurance that the register is current. For each area, a single diagnostic question surfaces the gap:
If any of those questions cannot be answered confidently, the answer is a gap in the audit evidence file. The earlier those gaps are identified, the more time there is to address them before the auditor requests the supporting documentation.
Our detailed IFRS 16 audit preparation checklist works through each of these areas with specific steps, evidence requirements, and timing guidance. It is designed for finance teams who want to run their own readiness review before the audit begins, rather than discovering gaps once the fieldwork is underway. For a broader self-assessment framework covering both Australia and New Zealand, our AASB 16 and NZ IFRS 16 compliance self-assessment guide is a practical starting point.
Does ASIC specifically examine IFRS 16 and AASB 16 compliance in its financial reporting reviews?
Yes. ASIC lists "the lease accounting requirements and the impairment of lessee right-of-use assets" as an enduring financial reporting focus area on its surveillance focus areas page. This applies to listed entities, large proprietary companies, and registrable superannuation entities. It is not a temporary focus introduced at adoption; it is a standing area of scrutiny that applies each reporting year.
What is the difference between IFRS 16 and AASB 16 for audit purposes in Australia?
AASB 16 is Australia's adoption of IFRS 16 and is substantively identical for most private sector entities. The core recognition, measurement, and disclosure requirements are the same. For audit purposes, the compliance areas described in this article apply equally under both standards. Australian government entities apply AASB 16 with some additional public-sector-specific provisions, including concessionary lease measurement under AASB 2018-8.
How does the FMA approach lease accounting compliance in New Zealand financial statement reviews?
The FMA monitors FMC reporting entities to ensure they prepare financial statements that comply with applicable accounting standards, which in New Zealand means NZ IFRS 16. The FMA's April 2026 monitoring insights report continued its focus on significant accounting judgements and the quality of accounting records that support financial statement disclosures, both of which apply directly to lease accounting compliance. The FMA expects entities to have accounting records readily available on request that support recognition decisions and key assumptions.
Why do modification remeasurements fail so often in spreadsheet-based processes?
Spreadsheet-based lease accounting processes are typically built for the initial recognition calculation, not for ongoing modification management. Each modification event (extension, termination, rent change, CPI adjustment) requires recalculating the present value of revised future payments at a current IBR, updating the right-of-use asset and lease liability schedules, and generating new journal entries. In a spreadsheet, each of these steps requires manual intervention that is easily missed, particularly in a high-volume portfolio with frequent fleet changes or CPI-linked property leases.
How does LOIS automate controls across all six audit focus areas?
LOIS automates the full IFRS 16 and AASB 16 compliance cycle from a single platform. The centralised lease register supports completeness controls; every modification generates an immutable audit trail with before-and-after values; the GL integration produces a locked-down periodic reconciliation report; the disclosure suite is generated from the same underlying data as the journals; CPI remeasurements are timed to payment dates; and IBRs are stored and documented at the individual lease level. CA-qualified LOIS experts also provide ongoing support to ensure that judgements underpinning the calculations remain defensible. Find out more at loisleasing.com/lease-accounting-software.
Prepare for your IFRS 16 audit with confidence
Work through our detailed IFRS 16 audit preparation checklist to identify gaps before the auditor does, or talk to the LOIS team about how the platform automates controls across all six areas as standard.
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