(paragraphs C14-C15)

BC289 The lessor accounting requirements in IFRS 16 are substantially unchanged from those in IAS 17. Consequently, the IASB decided that a lessor is not required to make any adjustments on transition and should account for its leases applying IFRS 16 from the date of initial application (except for intermediate lessors in a sublease - see paragraphs BC290-BC291).

BC290 Subleases that were classified by an intermediate lessor as operating leases applying IAS 17 may be classified as finance leases applying IFRS 16. This is because IFRS 16 requires an intermediate lessor to evaluate the classification of a sublease by reference to the right-of-use asset arising from the head lease and not by reference to the underlying asset as was required by IAS 17. If an intermediate lessor were to continue to apply previous operating lease accounting to these subleases, it would recognise the right-of-use asset arising from the head lease, despite the fact that, in effect, it no longer has a right to use the underlying asset. The IASB thought that this could be misleading for users of financial statements.

BC291 Consequently, IFRS 16 requires an intermediate lessor to reassess a sublease that was classified as an operating lease applying IAS 17 at the date of initial application to determine whether the sublease should be classified as an operating lease or a finance lease applying IFRS 16, and to account for it accordingly.