6 years into IFRS 16—Was it really worth the hassle?

When IFRS 16 landed in 2019, finance teams stared at the handbook and wondered if they’d picked up the wrong language. A single lease payment—once a simple rent check—would now be carved in two: one slice labeled depreciation, the other booked as a quasi‑interest cost buried in the finance line—using internal models no outsider would ever understand. Accountants joked they needed a compass just to follow the journal entries, while CFOs fretted over which department—which system, even—which spreadsheet tab should own the numbers. Yet almost overnight that baffling arithmetic performed a small miracle: it inflated the very metric investors, bankers and boards treat as holy writ—EBITDA—without anyone selling an extra loaf of bread.

At first blush that looked like a free lunch. Retailers—whose business model depends on long store leases—watched EBITDA swell overnight. Tesco’s restated first‑half 2019 figures, for instance, showed operating profit jump £188 million without anyone selling an extra sandwich. European fashion giant Inditex pocketed an €88 million lift to net income in its transition year, enough to fund the launch of an entire Zara concept store. Across the Dutch AEX, academic researchers clocked a 15 percent average rise in EBITDA and a 30 percent surge in reported net debt as the liabilities finally surfaced. A Norwegian study of Oslo’s transport and retail names found the EBITDA boost closer to 20 percent—north of 50 percent in the most lease‑heavy corners.

Auditors love Change

Those are headline‑grabbing numbers, but they mask a far messier reality inside finance departments. Implementing IFRS 16 meant combing through decades of rental contracts, estimating discount rates that changed with central‑bank policy, and building software flexible enough to re‑measure liabilities every time a landlord agreed to a rent holiday or a pandemic forced a store closure. Consultant invoices piled up. One U.K. supermarket group logged more than £20 million in external IT costs alone. An Australian survey of CFOs a full five cycles after adoption still describes IFRS 16 as a "moderate to very significant" drag on finance‑team bandwidth.

The pain did not end with go‑live. Because rent is now split, companies must track the age of every lease asset, test it for impairment and disclose judgments on lease terms—especially tricky for retailers that can exit malls early or renegotiate square footage on the fly. Discount‑rate gymnastics have become a quarterly ritual, and auditors—newly armed with liability models of their own—quiz treasurers about why a Tokyo flagship store deserves a different incremental borrowing rate than a Warsaw outlet. In practice, many preparers grudgingly maintain two ledgers: the IFRS‑compliant books for the regulators and a shadow set that mimics the old rent‑expense model for internal dashboards and store‑level profitability analysis.

Investors, meanwhile, are of two minds. On one hand, they finally see the full weight of lease obligations—an undeniable improvement over the back‑of‑the‑envelope multiples once used to capitalise rent. Credit‑rating agencies have folded right‑of‑use liabilities straight into debt calculations, closing a loophole that flattered leverage ratios. On the other hand, the EBITDA boost has stripped the metric of its old halo as a cash‑flow proxy. Portfolio managers on the IFRS Foundation’s Capital Markets Advisory Committee now talk about "EBITDA after leases" (EBITDAL) or simply rebuild pre‑IFRS figures in Excel to keep models comparable across time. Lenders have followed suit, hurriedly redrafting covenant language to prevent the optical margin gains from tripping spring‑forward clauses.

And the Verdict: More Hassle Than Help

Six years into the experiment, the IASB’s own post‑implementation review concedes that the standard is "generally working as intended"—code for "no one’s cooking the books"—but the board is still fielding a laundry list of complaints. Preparers want relief from constant lease‑modification bookkeeping, clearer rules on sale‑and‑leaseback deals, and a rethink of discount‑rate disclosures that have turned footnotes into algebra exams. Investors keep asking for a single table that shows cash rent, lease interest and depreciation side by side—essentially the rent‑expense line they lost in the shuffle.

Which raises the awkward question: Was any of this worth it? If the goal was transparency, many analysts argue that beefed‑up footnote disclosures—say, a mandatory reconciliation of total committed lease payments—would have achieved 90 percent of the benefit at a fraction of the cost. Instead, companies bear a permanent compliance tax, auditors juggle new judgment calls, and users must reverse‑engineer numbers that used to come straight off the income statement. As one buy‑side analyst quipped during a recent EFRAG round‑table, "We got a clearer balance sheet and a murkier P&L—that’s a push at best."

Even standard‑setters hint at buyer’s remorse. Board members have floated the idea of grouping all lease information in a single note and encouraging companies to present a pro‑forma rent expense for comparability. Yet any substantive rollback is off the table; the political cost of admitting failure would dwarf the implementation bill.

Bottom line: The rule was a blockbuster hassle and, in hindsight, probably not worth the sweat. Transparency came at the price of simplicity, and the average investor still needs a calculator to translate those pumped‑up earnings back into plain English.