IFRS 16 vs ASC 842: lease accounting differences

The IASB and FASB started a joint lease project and finished with different answers for lessees. For groups reporting in both frameworks, and for analysts comparing US and international companies, the differences change EBITDA, operating cash flow and expense timing. This guide sets them out with one lease run through both.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

IFRS 16 vs ASC 842 comes down to one big difference and several smaller ones. Both put leases on the balance sheet, but IFRS 16 has a single lessee model, treating every lease like a financed purchase, while ASC 842 keeps operating leases with a straight-line cost. Other lease accounting differences include the low-value exemption (IFRS only), the private company risk-free rate (US only), sale and leaseback gains and the cash flow classification. For a five-year lease of 100,000 a year at 5%, year 1 expense is 108,237 under IFRS 16 and 100,000 under an ASC 842 operating lease.

At a glance

Lessee models
One (IFRS) vs two (US)
Operating leases
Straight-line cost under US GAAP
Low-value exemption
IFRS only
Risk-free rate election
US private companies only
Sale and leaseback gain
Partial (IFRS) vs full (US)
Excel
Lease calculator
IFRS 16 vs ASC 842: lease accounting differencesLessee models: One (IFRS) vs two (US); Operating leases: Straight-line cost under US GAAP; Low-value exemption: IFRS only; Risk-free rate election: US private companies only; Sale and leaseback gain: Partial (IFRS) vs full (US); Excel: Lease calculator.KEY FACTS AT A GLANCEIFRS 16 vs ASC 842: lease accounting differencesLessee modelsOne (IFRS) vs two (US)Operating leasesStraight-line cost underUS GAAPLow-value exemptionIFRS onlyRisk-free rate electionUS private companies onlySale and leaseback gainPartial (IFRS) vs full(US)ExcelLease calculatorChecked against official sourcesTax BakersIFRS 16 vs ASC 842: lease accounting differencesLessee models: One (IFRS) vs two (US); Operating leases: Straight-line cost under US GAAP; Low-value exemption: IFRS only; Risk-free rate election: US private companies only; Sale and leaseback gain: Partial (IFRS) vs full (US); Excel: Lease calculator.KEY FACTS AT A GLANCEIFRS 16 vs ASC 842: leaseaccounting differencesLessee modelsOne (IFRS) vs two (US)Operating leasesStraight-line cost under US GAAPLow-value exemptionIFRS onlyRisk-free rate electionUS private companies onlySale and leaseback gainPartial (IFRS) vs full (US)ExcelLease calculatorChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

IFRS 16 vs ASC 842: one lessee model or two?

Under IFRS 16, every lease on the balance sheet produces depreciation of the right-of-use asset and interest on the liability, so expense is front-loaded. Under ASC 842, finance leases work the same way, but operating leases, which are most property and many equipment leases, produce a single straight-line lease cost.

The same lease: IFRS 16 vs an ASC 842 operating leaseThe same lease: IFRS 16 vs an ASC 842 operating lease108,237100,000Year 1104,319100,000Year 2100,206100,000Year 395,887100,000Year 491,351100,000Year 5IFRS 16 depreciationIFRS 16 interestASC 842 operating lease cost
Same total cost over five years; IFRS 16 front-loads it and moves it below EBITDA.

What are the main lease accounting differences?

AreaIFRS 16ASC 842
Lessee classificationNone: one modelOperating or finance
Low-value exemptionYes, optional, lease by leaseNo
Short-term exemptionYes, by classYes, by class
Discount rateImplicit rate or incremental borrowing rateSame, plus a risk-free rate election for private companies
Changes in index-linked paymentsLiability remeasured when cash flows changeRemeasured only when the liability is remeasured for another reason
Sale and leaseback gainOnly the part relating to rights transferredFull gain if the transfer is a sale
Subleases (intermediate lessor)Classified by reference to the right-of-use assetClassified by reference to the underlying asset
Lessor modelsFinance and operatingSales-type, direct financing and operating
Cash flows, lesseePrincipal and interest in financing (under IFRS 18)Operating leases in operating; finance lease principal in financing, interest in operating

One lease, two answers

Year 1, five-year lease of 100,000 a year at 5%IFRS 16ASC 842 operating lease
Lease liability at the start432,948432,948
Expense in operating costs86,590 (depreciation)100,000 (lease cost)
Interest expense21,647None
Total expense108,237100,000
Effect on EBITDANo lease cost in EBITDA100,000 deducted in EBITDA
Operating cash flowPayment of 100,000 is financingPayment of 100,000 is operating

EBITDA is 100,000 higher under IFRS 16 for the same lease, and operating cash flow is 100,000 higher. Analysts comparing a US retailer with a European one need to adjust for this. The Lease calculator (Excel) shows both treatments side by side.

How do analysts adjust for the difference?

Many analysts put US operating leases on the same footing as IFRS 16 by adding the operating lease cost back to EBITDA and treating the operating lease liability as debt, or do the reverse for IFRS companies by deducting depreciation and interest on leases. Either way, the adjustment is needed before comparing EBITDA multiples, leverage ratios or operating cash flow across the two frameworks.

Why did the boards disagree?

The FASB judged that most users of US financial statements saw operating leases differently from financed purchases and wanted a straight-line cost, while the IASB concluded that all leases create the same kind of asset and liability and should be accounted for the same way. Both agreed leases belong on the balance sheet.

Where to go next

See IFRS 16 explained, ASC 842 explained and operating vs finance leases.

Need help applying the standards?

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Questions people ask

What is the main difference between IFRS 16 and ASC 842?

IFRS 16 has one lessee model treating all leases like financed purchases; ASC 842 keeps operating leases with a straight-line lease cost alongside finance leases.

Does IFRS 16 or ASC 842 give higher EBITDA?

IFRS 16, because lease costs become depreciation and interest, both excluded from EBITDA. ASC 842 operating lease costs stay in EBITDA.

Does ASC 842 have a low-value lease exemption?

No. Only IFRS 16 has one; both have a short-term lease exemption.

How do sale and leaseback gains differ?

IFRS 16 recognises only the gain on the rights transferred; ASC 842 recognises the full gain when the transfer is a sale.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 16 Leases
  2. FASB Accounting Standards Codification: Topic 842, Leases

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS 16IFRS 16 leases explainedASC 842ASC 842 leases explainedASC 842Operating vs finance leases for lessees

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This guide is general information. It is not tax or legal advice for your situation.