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Is your balance sheet accurate? The risks of misstated assets and liabilities

Discover how inaccurate balance sheets can harm compliance and strategy, and how LOIS delivers complete, reliable data that enables smarter decisions.

Stefan Iggo
Nov 19, 2025

Accurate financial reporting is critical for any business, but when Right-of-Use (ROU) assets and lease liabilities are incorrectly recorded on your balance sheet, the consequences can be far-reaching. From distorted KPIs to regulatory penalties, these errors can undermine investor confidence, delay audits, and lead to poor strategic decisions. 

Under IFRS 16 (or equivalent standards like FASB 842), leases must be properly accounted for, including accurate depreciation of the ROU asset and effective interest calculation for the liability. Mistakes can occur during initial measurement or through flawed subsequent accounting, and they often go unnoticed until they cause real damage. 

How financial statements and KPIs can be affected 

1. Misstated assets and liabilities
Your balance sheet may no longer reflect your true financial position, leading to a misleading view of your company’s health.

2. Skewed financial ratios
Key metrics like debt-to-equity and Return on Assets (ROA) can be distorted. This affects investor perception, lending decisions, and internal performance assessments.
3. Incorrect expense recognition
Errors in amortising the ROU asset or calculating the lease liability can misstate expenses, impacting your income statement and reported profitability.
4. Flawed cash flow forecasts
If lease payments aren’t properly accounted for, your cash flow projections may be off, potentially leading to liquidity issues and misinformed budgeting.

 

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Keeping data accurate ensures your balance sheet and outputs are always audit-ready and giving you a true picture of business performance.

Business consequences of lease accounting errors 

1. Audit delays and higher costs
Auditors may require additional documentation and clarification, delaying sign-off and increasing audit fees.
2. Regulatory scrutiny and penalties
Tax and other authorities may question discrepancies, potentially resulting in fines or compliance issues.
3. Poor strategic decisions
Management relies on accurate financial data to make informed decisions. Misstated lease figures can lead to flawed investments or operational plans.
4. Misleading investors and stakeholders
Inaccurate reporting can damage your reputation and hinder access to capital, especially if stakeholders lose trust in your financial transparency.

Why these errors happen

1. Complex lease standards

IFRS 16 requires most leases to be capitalised, which demands a deep understanding of the standard and its nuances.
2. Initial measurement and judgement mistakes
Errors in calculating lease payments, discount rates, or lease terms can lead to incorrect ROU asset and liability values.
3. Subsequent accounting issues
Missteps in depreciation or interest calculations are common, especially without automated systems or expert oversight.
4. Failure to account for changes
Not remeasuring lease liabilities when modifications are made, assumptions change, or neglecting impairment testing, can result in ongoing inaccuracies.

What can you do? 

Lease accounting under IFRS 16 is complex, but getting it right is essential. Businesses must ensure they have the right systems, expertise, and processes in place to avoid costly errors. 

At LOIS, we help organisations navigate these challenges with confidence, ensuring compliance, accuracy, and clarity in financial reporting. Learn how our expert team of Chartered Accountants can help streamline your lease data and help your business avoid the pitfalls of misstated lease assets and liabilities.
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