(paragraphs 20-21 and 36-43)

BC182 The IASB decided that a lessee should measure lease liabilities similarly to other financial liabilities using an effective interest method, so that the carrying amount of the lease liability is measured on an amortised cost basis and the interest expense is allocated over the lease term.

BC183 IFRS 16 does not require or permit a lessee to measure lease liabilities at fair value after initial measurement. In the IASB’s view, this approach would have been:

(a) inconsistent with the subsequent measurement of many other non-derivative financial liabilities, thus decreasing comparability for users of financial statements; and

(b) more complex and costly for entities to apply than a cost-based approach, because it requires the use of both current expected cash flows and current interest rates.

Reassessment of options (paragraph 20)

BC184 In principle, the IASB is of the view that users of financial statements receive more relevant information if lessees reassess extension, termination and purchase options on a regular basis. The resulting information is more relevant because reassessment reflects current economic conditions, and using a lease term established at the commencement date throughout the lease could be misleading.