IFRS VS US GAAP · LEASES

IFRS 16 vs ASC 842.

Q: Is IFRS 16 the same as ASC 842?

No. Both standards put leases on the balance sheet as a right-of-use asset and a lease liability, so the balance sheet looks similar. The income statement does not. IFRS 16 uses one lessee model where every lease produces amortization plus interest. ASC 842 keeps two classes: finance leases behave like IFRS 16, and operating leases produce a single straight-line lease cost. That one split changes EBITDA, expense timing and cash flow classification.

Q: Which standard produces a better EBITDA?

IFRS 16. Under IFRS 16 the lease expense is split into amortization and interest, and both sit below EBITDA, so reported EBITDA rises. Under ASC 842 an operating lease keeps a single straight-line lease cost in operating expenses, above EBITDA, so EBITDA is lower for the same lease. If your covenants or your valuation multiple are quoted on EBITDA, the framework you report under changes the number, not the economics.

Q: What happens when rent is tied to an index like CPI?

This is the difference people miss. Under IFRS 16 a change in an index or rate that drives variable lease payments triggers a remeasurement of the lease liability when the cash flows change. Under ASC 842 a change in an index or rate does not trigger remeasurement on its own; the higher payment is expensed in the period it is incurred, and the liability is only remeasured if something else forces it. Index-linked property leases can therefore diverge materially between the two frameworks over time.

Written by Azhar Jaffri, Co-Founder and Finance Lead · Published 2026-09-10 · Updated 2026-09-10

Both frameworks made the same big move: leases came out of the footnotes and onto the balance sheet. A right-of-use asset on one side, a lease liability on the other. If you only ever look at total assets, IFRS 16 and ASC 842 land in roughly the same place.

Then they part ways. IFRS 16 runs every lease through one model. ASC 842 keeps two. That single decision reshapes your EBITDA, moves cash between sections of the cash flow statement, and changes what your lender sees when they test a covenant. Same building, same rent, two different sets of financials.

One model versus two

Under IFRS 16 a lessee has no classification decision to make. Every lease is treated like a financed purchase of the right to use an asset. You amortize the right-of-use asset on a straight line and you unwind interest on the liability. Because interest is highest when the balance is highest, total expense is front-loaded: heavier in year one, lighter in the final year.

ASC 842 kept the old distinction alive. A finance lease behaves exactly like IFRS 16, front-loaded and split in two. An operating lease, which is most real estate and most equipment rentals, goes on the balance sheet but keeps a single straight-line lease cost on the income statement. Same expense every year for the life of the lease. The right-of-use asset is then squeezed to make that arithmetic work, which is why the operating lease asset under US GAAP amortizes on a curve nobody would draw on purpose.

Side by side

Issue	IFRS 16	ASC 842 (US GAAP)
Lessee model	Single model, all leases	Dual model: finance and operating
Income statement	Amortization plus interest, front-loaded	Finance: front-loaded. Operating: single straight-line cost
Effect on EBITDA	Raises it. Both charges sit below the line	Operating lease cost sits above the line, so EBITDA is lower
Cash flow statement	Principal in financing, interest per policy	Finance: principal in financing. Operating: entire payment stays in operating
Short-term exemption	Yes, 12 months or less	Yes, 12 months or less
Low-value exemption	Yes, based on the asset when new	None
Discount rate relief	Implicit rate, else incremental borrowing rate	Same, plus a risk-free rate election for non-public entities
Index-linked rent	Remeasure the liability when cash flows change	No remeasurement for the index change alone
Sublease classification	Tested against the right-of-use asset	Tested against the underlying asset
Impairment of the asset	IAS 36, reversal permitted	ASC 360, no reversal

What it actually does to your numbers

Take a five-year warehouse lease. Under IFRS 16 the rent disappears from operating expenses entirely and comes back as amortization and interest. EBITDA goes up. Operating cash flow goes up too, because most of the payment is now classified as financing. Under ASC 842 the same lease, classified as operating, leaves the rent sitting in operating expenses and the whole payment in operating cash flow. Nothing moves.

That matters because almost nobody is valued on net income alone. Debt covenants are written on EBITDA and on leverage. Buyers pay a multiple of EBITDA. If your lease-heavy business reports under IFRS 16, the same operations look more profitable and more leveraged at the same time. Neither number is wrong. They are answers to different questions, and the person reading your statements needs to know which question was asked.

The three that catch people out

Low-value assets. IFRS 16 lets you leave small leased items off the balance sheet based on what the asset costs new. ASC 842 gives you nothing equivalent. A portfolio of leased laptops and coffee machines that never appears in an IFRS balance sheet has to be capitalized, or argued as immaterial, under US GAAP.

Index-linked rent. A CPI escalator triggers a remeasurement under IFRS 16 once the cash flows change. Under ASC 842 it does not, on its own. Over a ten-year lease with annual escalation, the two liabilities drift apart every single year, and the gap is not a rounding difference.

The discount rate. A private US company can elect a risk-free rate by asset class under ASC 842. That election is simple to apply and expensive in presentation: a lower rate produces a bigger liability and a bigger asset. IFRS 16 has no such shortcut, so the IFRS number usually rests on a genuine incremental borrowing rate.

Which one applies to you

If you are a US company, US GAAP is the answer. The SEC requires domestic issuers to report under US GAAP, and private US companies follow it for lenders, buyers and their CPA. IFRS shows up in one of two ways: you are a foreign private issuer listed in the US and file under IFRS as issued by the IASB with no reconciliation, or you are a US subsidiary reporting up to a foreign parent that consolidates under IFRS.

That second case is the common one, and it is the one that causes pain. You keep the US books under ASC 842, and every reporting period you hand the parent a second measurement of the same leases under IFRS 16. One lease population, two answers, and a bridge between them that somebody has to build and defend.

Where Korven fits

We build the lease schedule once, correctly, and run both measurement bases off the same source data so the reconciliation falls out of the close instead of being rebuilt every quarter. That sits inside the monthly bookkeeping and close, and it feeds the covenant testing and the fractional CFO work above it. If your books are behind before any of this can start, catch-up bookkeeping comes first. And when it is time to file, a licensed CPA partner prepares and signs the return from books that are already clean.

Questions, Answered.

Is IFRS 16 the same as ASC 842?+

No. Both put leases on the balance sheet as a right-of-use asset and a lease liability, so the balance sheet looks similar. The income statement does not. IFRS 16 uses one lessee model where every lease produces amortization plus interest. ASC 842 keeps two classes: finance leases behave like IFRS 16, operating leases produce a single straight-line lease cost. That split changes EBITDA, expense timing and cash flow classification.

Does US GAAP require all leases on the balance sheet?+

Yes, with one exception. Under ASC 842 both finance and operating leases sit on the balance sheet. The only exclusion is the short-term practical expedient for leases of twelve months or less with no purchase option reasonably certain to be exercised, and that is a policy election made by class of underlying asset.

Which standard produces a better EBITDA?+

IFRS 16. The lease expense is split into amortization and interest, and both sit below EBITDA, so reported EBITDA rises. Under ASC 842 an operating lease keeps a single straight-line cost in operating expenses, above EBITDA. If your covenants or your valuation multiple are quoted on EBITDA, the framework changes the number without changing the economics.

Does ASC 842 have a low-value exemption like IFRS 16?+

No. IFRS 16 lets a lessee skip capitalization for leases of low-value assets, assessed on the value of the asset when new, which the IASB discussed at a magnitude of around USD 5,000. ASC 842 has no equivalent. Laptops, printers and small equipment that stay off an IFRS balance sheet have to be capitalized under US GAAP unless they are short-term or immaterial.

What discount rate do I use?+

Both standards start with the rate implicit in the lease when it is readily determinable, and fall back to the incremental borrowing rate when it is not. The difference is the relief: ASC 842 lets a non-public business entity elect a risk-free rate by class of underlying asset. IFRS 16 has no such election. A risk-free rate is usually lower, which produces a larger liability and a larger right-of-use asset.

What happens when rent is tied to an index like CPI?+

Under IFRS 16 a change in an index or rate that drives variable lease payments triggers a remeasurement of the liability when the cash flows change. Under ASC 842 it does not on its own; the higher payment is expensed in the period incurred, and the liability is remeasured only if something else forces it. Index-linked property leases diverge materially between the two frameworks over time.

My US company has a foreign parent. Which standard applies?+

Usually both. The US entity keeps its statutory and lender-facing books under US GAAP, and reports a second set of lease numbers to the parent under IFRS 16 for consolidation. One lease population, two measurement bases, and a reconciliation between them every period. Building that reconciliation once, properly, is far cheaper than rebuilding it every quarter.

Sources & References

External sources open in a new tab. Korven is not affiliated with these organizations. This guide is general information, not accounting advice for your specific facts.

Keep Reading

The Month-End Close Checklist

The exact close sequence we run, in order, and why the balance sheet is where errors hide.

Read the guide →

The 13-Week Cash Flow Forecast

See the week you run out of cash before it arrives. Free Excel model included.

Read the guide →

Fractional CFO vs Bookkeeper vs CPA

A bookkeeper records, a CPA files, a CFO decides. Which seat your business is missing.

Read the guide →

Reporting the same leases twice?

We will look at your actual lease schedule, tell you where the two frameworks diverge for your portfolio, and build the reconciliation into your monthly close. Free audit first, before you pay us a dollar.

Get Your Free Audit →