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Overview of IFRS 16, ASC 842 and FRS 102 Immaterial Leases
IFRS 16 & ASC 842
Under IFRS 16 and ASC 842, an immaterial lease refers to a lease that is so small or insignificant that it does not need to be recognized on the balance sheet, even though technically it meets the definition of a lease.
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IFRS 16 explicitly allows companies to exclude leases of "low-value" assets (like laptops, small office furniture) from capitalization. Instead, companies can expense these lease payments straight-line over the lease term.
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ASC 842 (U.S. GAAP) does not have an official "low-value asset" exemption like IFRS 16. However, U.S. companies often apply a materiality threshold based on general accounting materiality principles to decide whether to recognize certain leases.
Examples of immaterial (low-value) leases:
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A photocopier leased for a small office
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Individual mobile phones or tablets leased for employees
In short:
Immaterial leases under IFRS 16/ASC 842 are leases that are either low-value (IFRS 16) or not material (ASC 842), and thus can be excluded from capitalization and instead recognized as a period expense.
FRS 102
Under FRS 102 (the UK and Ireland accounting standard) does not explicitly define or mention "immaterial leases" the way IFRS 16 or ASC 842 do.
Instead:
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FRS 102 (specifically in Section 20, Leases) provides guidance on lease accounting, but under IFRS 16 or ASC 842, almost all leases are now treated as finance leases. This means that both finance and operating leases must be recognized on the balance sheet as right-of-use assets, with corresponding lease liabilities for future payments.
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It relies on the general concept of materiality throughout the standard: if a lease is immaterial to the financial statements, it can be omitted or simplified under the general materiality principles (Section 2, Concepts and Pervasive Principles).
- But: there’s no special exemption for low-value assets or immaterial leases in Section 20 itself. It is up to management judgment based on materiality.
For more information on how to assess materiality and recognition thresholds, see this article for details How to Assess Materiality and Recognition Thresholds.
How does Occupier Help?
With Occupier, you can easily identify leases that fall below your organization's materiality threshold. It will take care of expensing the lease payments on a straight-line basis over the lease term. Plus, our Disclosure Reporting feature will ensure that immaterial expenses and future commitments for these leases are accurately accounted for.