IPSAS 43 Leases | StandardsHub

IPSAS 43 Leases is the current, active standard issued by the IPSASB for recognition, measurement, presentation, and disclosure of leases for lessees and lessors. Effective for periods beginning on or after 1 January 2025. Earlier application permitted for entities that also apply IPSAS 41 at or before this Standard's initial application date.

IPSAS 43 is drawn primarily from IFRS 16 Leases for the public sector, retaining the lessee right-of-use model and lessor classification framework while adding distinctive public-sector features: concessionary lease measurement (market-rate-based right-of-use asset cost), concessionary lease disclosures for both lessees and lessors, and public-sector scope exclusions for service concession arrangements and biological asset leases.

Objective, Scope & Definitions (paras. 1–5)

Objective & scope

Sets out recognition, measurement, presentation, and disclosure principles for leases – ensuring lessees and lessors provide relevant, faithfully-representative information about the effect of leases on financial position, performance, and cash flows.

Leases to explore for/use minerals, oil, gas, and similar non-regenerative resources Leases of biological assets (IPSAS 27) held by a LESSEE Service concession arrangements (IPSAS 32) Lessee rights under licensing agreements within IPSAS 31's scope (films, recordings, plays, manuscripts, patents, copyrights)

A lessee MAY elect to apply this Standard to OTHER intangible asset leases beyond the mandatory scope (para. 4).

Core definitions (para. 5)

Lease

A contract, or part of a contract, conveying the right to use an asset for a period of time in exchange for consideration.

Lease term

The non-cancellable period, plus extension-option periods the lessee is REASONABLY CERTAIN to exercise, and termination-option periods it is reasonably certain NOT to exercise.

Interest rate implicit in the lease

The rate equating the present value of lease payments plus unguaranteed residual value to the sum of the underlying asset's fair value and the lessor's initial direct costs.

Lessee's incremental borrowing rate

The rate the lessee would pay to borrow, over a similar term and security, funds to obtain an asset of similar value in a similar economic environment.

Identifying a Lease & Separating Contract Components (paras. 10–16)

The control test

A contract is, or contains, a lease if it conveys the right to CONTROL the use of an IDENTIFIED asset for a period of time, in exchange for consideration

Assessed at CONTRACT INCEPTION; reassessed ONLY if the contract's terms/conditions actually change (paras. 10, 12). A "period of time" can be expressed as an amount of USE (e.g. production units) (para. 11).

Separating lease from non-lease components

Each LEASE component within a contract is accounted for SEPARATELY from non-lease components (e.g. maintenance services bundled with an equipment lease) – unless the entity applies the practical expedient to combine them into a single lease component instead (para. 13).

Lessee – Recognition Exemptions: Short-Term & Low-Value Leases (paras. 6–9)

Two elective exemptions from the full model

SHORT-TERM leases (≤12 months at commencement, no purchase option) OR LOW-VALUE underlying assets → elect to expense payments straight-line (or another systematic basis better reflecting the benefit pattern), skipping right-of-use/liability recognition entirely

A lease that CONTAINS a purchase option is NEVER a short-term lease, regardless of the remaining term.

Election mechanics

Short-term election: made BY CLASS of underlying asset (a grouping of similar nature/use) Low-value election: made LEASE BY LEASE, individually A MODIFICATION, or a CHANGE in lease term (e.g. exercising a previously-excluded option), means the entity must treat it as a NEW lease for exemption-eligibility purposes (para. 8)

Lessee – Recognition & Initial Measurement (paras. 23–29)

At commencement: TWO items, always together

Recognize a RIGHT-OF-USE ASSET and a LEASE LIABILITY – at the commencement date, for every lease not exempted under §3

RIGHT-OF-USE ASSET COST (PARA. 25)

The initial lease liability amount Payments made at/before commencement, LESS lease incentives received Initial direct costs incurred by the lessee Estimated dismantling/removal/restoration costs (IPSAS 19 basis), unless incurred to produce inventories

LEASE LIABILITY – present value of what's not yet paid (paras. 27–29)

PV of unpaid lease payments, discounted at the interest rate IMPLICIT in the lease (if readily determinable) – otherwise the lessee's INCREMENTAL BORROWING RATE

Fixed payments (incl. in-substance fixed), less lease incentives receivable Index/rate-linked variable payments, initially measured using the commencement-date index/rate Amounts expected payable under residual value guarantees Purchase option exercise price, if reasonably certain to exercise Termination penalty payments, if the lease term reflects exercising a termination option

Lessee – Concessionary Leases (paras. 26A–26C, 29A)

Market-rate-based cost, not contractual-payment-based – a distinctive public sector rule

A CONCESSIONARY lease – granted at below-market terms – has its right-of-use asset cost measured at the PRESENT VALUE OF MARKET-RATE PAYMENTS for the underlying asset's CURRENT USE, at the commencement date, NOT the actual (below-market) contractual payments. IFRS 16 has NO equivalent to this rule at all (§14).

Market-rate payments are discounted using the SAME rate hierarchy as ordinary leases (implicit rate, or incremental borrowing rate) (para. 26B) The asset cost ALSO includes initial direct costs and dismantling/restoration estimates, same as an ordinary lease (para. 26B) A REASONABLE LEVEL OF EFFORT is required to determine market-rate payments; if genuinely unavailable, the lessee falls back to the ordinary paras. 24–26 measurement instead (para. 26C) The LEASE LIABILITY, by contrast, is measured under the SAME paras. 27–29 mechanics as an ordinary lease – using the ACTUAL (below-market) contractual payments (para. 29A)

The GAP between market-rate asset cost and below-market liability effectively captures the CONCESSION element as part of the right-of-use asset's initial value – conceptually similar to how IPSAS 23 treats non-exchange components of concessionary loans.

Lessee – Subsequent Measurement & Lease Modifications (paras. 30–47)

Right-of-use asset – three possible models

Historical cost model (default) – cost, less accumulated depreciation/impairment, adjusted for lease liability remeasurements; depreciated per IPSAS 45, over the SHORTER of useful life or lease term (unless ownership transfers, or a purchase option is expected – then to the underlying asset's full useful life) Investment property fair value model – IF the lessee applies IPSAS 16's current value model to owned investment property, right-of-use assets meeting that definition follow suit PP&E revaluation model – IF the lessee applies the current value model to a PP&E class, matching right-of-use assets follow suit

Impairment testing applies IPSAS 21 or IPSAS 26 as appropriate to the right-of-use asset (para. 34).

Lease liability remeasurement & modifications

Interest accrues on the liability using a CONSTANT periodic rate; payments reduce the carrying amount. REASSESSMENT is triggered by changes in lease term, purchase-option certainty, or expected residual-value-guarantee amounts – remeasured using a REVISED discount rate in some cases, the original rate in others (paras. 37–43). A genuine MODIFICATION (not accounted for as a separate new lease) is accounted for by remeasuring the liability using a revised discount rate, with a corresponding right-of-use asset adjustment – EXCEPT scope-decrease modifications, which recognize a gain/loss for the portion terminated (paras. 44–47).

Lessor – Classification: Finance vs Operating (paras. 65–70)

The legacy risks-and-rewards test – retained for LESSORS only

Finance lease = transfers SUBSTANTIALLY ALL risks and rewards incidental to ownership. Operating lease = does not

A genuinely asymmetric model – LESSEES apply the single right-of-use model (§3–§6) regardless of classification; only LESSORS still classify. Substance governs over form (para. 67). Classification is fixed at INCEPTION, reassessed ONLY on a lease modification – never merely from changed estimates or lessee default (para. 70).

Finance-lease indicators (paras. 67–68)

Ownership transfers by lease-end; or a purchase option expected to be exercised (bargain price) Lease term covers the MAJOR PART of the asset's economic life PV of lease payments ≈ SUBSTANTIALLY ALL of the asset's fair value at inception The asset is so SPECIALIZED only the lessee can use it without major modification Secondary indicators: lessee bears cancellation losses; lessee captures residual value fluctuation gains/losses; secondary-period rent is well below market

These indicators aren't always conclusive – if OTHER features clearly show risks/rewards AREN'T substantially transferred, it's still an operating lease (e.g. ownership transfers at a variable fair-value-equivalent payment) (para. 69).

Lessor – Finance Lease Recognition & Measurement (paras. 71–79)

A receivable, not a physical asset

Recognize a RECEIVABLE at an amount equal to the NET INVESTMENT in the lease = gross investment (lease payments receivable + unguaranteed residual value) discounted at the interest rate implicit in the lease

Initial direct costs are AUTOMATICALLY built into the net investment via the implicit rate's own definition – no separate addition needed (para. 73).

Subsequent measurement – constant periodic return

Finance REVENUE recognized over the lease term at a CONSTANT periodic rate of return on the net investment (para. 75) Lease payments received reduce BOTH principal and unearned finance revenue (para. 76) IPSAS 41's derecognition AND IMPAIRMENT requirements apply to the net investment; unguaranteed residual value estimates are reviewed REGULARLY, with reductions recognized immediately (para. 77)

A CONCESSIONARY finance lease follows the SAME recognition framework as an ordinary finance lease (para. 71A) – though its measurement will reflect below-market terms, generating a day-one concession loss (as seen in the Handbook's illustrative example computing a CU3.9m loss component).

Lessor – Operating Leases & Concessionary Lease Disclosures (paras. 94–96B)

Operating leases – the asset stays on the lessor's books

The lessor keeps the underlying asset recognized as its OWN PP&E (IPSAS 45 disclosures apply, DISAGGREGATED between leased and non-leased assets by class), or investment property/biological asset/intangible as applicable. A maturity analysis of undiscounted lease payments RECEIVABLE is required, for at least each of the first five years plus a total for remaining years (paras. 94–96).

Concessionary lease disclosures – granted by the lessor

Concessionary FINANCE leases – by class: carrying amount of assets transferred; net investment at commencement; the DIFFERENCE between the two (the concession); and the purpose/terms/nature of the concession (para. 96A) Concessionary OPERATING leases – by class: lease revenue accrued; associated costs incurred; the DIFFERENCE; and the purpose/terms/nature of the concession (para. 96B)

Sale and Leaseback Transactions – the Framework (paras. 97–102)

Step 1 – is the transfer genuinely a SALE?

Apply IPSAS 47's control-transfer/performance-obligation-satisfaction test to determine whether the asset transfer qualifies as a sale (para. 98). Also assess whether the leaseback contains an EMBEDDED CONCESSION at inception – if below-market terms ARE a concession, the seller-lessee applies IPSAS 47 and the buyer-lessor applies this Standard; otherwise, below-market terms are treated as PREPAYMENTS (para. 97A–97B, 100(a)).

Step 2 – the two outcomes

OutcomeTreatment

IS a saleSeller-lessee measures the right-of-use asset at the PROPORTION of previous carrying amount relating to the RETAINED right of use – recognizing gain/loss ONLY on the portion of rights actually TRANSFERRED. Buyer-lessor accounts for the purchase normally, and the lease under ordinary lessor rules (para. 99)

NOT a saleSeller-lessee CONTINUES recognizing the asset, and recognizes a FINANCIAL LIABILITY (IPSAS 41) equal to transfer proceeds; buyer-lessor does NOT recognize the asset, recognizing a FINANCIAL ASSET instead (para. 102)

Where sale consideration or lease payments AREN'T at fair value/market rates, adjustments are needed: below-market → prepayment of lease payments; above-market → additional FINANCING from buyer-lessor to seller-lessee – measured using whichever of two methods is more readily determinable (paras. 100–101).

Worked Example – Sale and Leaseback with Above-Market Terms (Illustrative Example 24)

Seller-lessee sells a building for CU2,000,000; fair value is CU1,800,000; carrying amount CU1,000,000

18-year leaseback, CU120,000/year, implicit rate 4.5%. Since sale price (CU2m) exceeds fair value (CU1.8m), the CU200,000 excess is additional financing, not sale proceeds (para. 100(b))

PV of 18 annual payments of CU120,000 at 4.5% = CU1,459,200 total, split: CU200,000 (financing, 18 payments of CU16,447) + CU1,259,200 (lease, 18 payments of CU103,553).

Seller-lessee's right-of-use asset = CU1,000,000 × (CU1,259,200 ÷ CU1,800,000) = CU699,555 – the retained-use proportion of the original carrying amount.

Total gain on sale = CU1,800,000 − CU1,000,000 = CU800,000, split: CU559,645 relates to the RETAINED right of use (not recognized), and CU240,355 relates to the rights TRANSFERRED to Buyer-lessor (recognized).

Seller-lessee's commencement-date entry:
Dr Cash CU2,000,000 · Dr Right-of-use asset CU699,555
Cr Building CU1,000,000 · Cr Lease liability CU1,259,200 · Cr Financial liability CU200,000 · Cr Gain on rights transferred CU240,355

Buyer-lessor's commencement-date entry:
Dr Building CU1,800,000 · Dr Financial asset CU200,000
Cr Cash CU2,000,000

After commencement, Buyer-lessor treats CU103,553 of each CU120,000 annual payment as lease revenue, and the remaining CU16,447 as settling the financial asset plus interest revenue.

Presentation & Disclosure Requirements (paras. 50–64A)

Lessee – presentation across all three primary statements

SOFP: right-of-use assets and lease liabilities shown SEPARATELY (or their line items disclosed) – investment-property right-of-use assets go with investment property instead (paras. 50–51) SOFPerformance: interest expense presented SEPARATELY from depreciation (para. 52) Cash flow statement: principal repayments → FINANCING activities; interest → per IPSAS 2's interest-paid policy; short-term/low-value/excluded-variable payments → OPERATING activities (para. 53)

Lessee notes (paras. 54–64A) & lessor package (§9)

Depreciation charge BY CLASS of underlying asset; interest expense on lease liabilities Short-term and low-value lease EXPENSE (separately) Total cash outflow for leases; additions to right-of-use assets A MATURITY ANALYSIS of lease liabilities, per IPSAS 30's liquidity risk disclosure approach Concessionary lease disclosures matching the LESSOR package in §9, adapted for the lessee side

A single note (or cross-referenced section) satisfies the objective – no duplication required where information already appears elsewhere in the statements (para. 55).

Effective Date & Amendment Timeline (paras. 103–103C)

Amendment history at a glance

Base Standard: periods beginning on/after 1 January 2025 – earlier application permitted for entities that ALSO apply IPSAS 41 at or before this Standard's initial application date (para. 103).

EffectiveChange

1 Jan 2025Para. 78 – IPSAS 44, Non-current Assets Held for Sale and Discontinued Operations (May 2022)

1 Jan 2025Paras. 5, 31, 32, 36, 60, 84, 94, AG45 – IPSAS 45, Property, Plant, and Equipment (May 2023)

1 Jan 2025Paras. 35, 113 – IPSAS 46, Measurement (May 2023)

IPSAS 43 is one of the NEWEST Standards in this library – issued alongside a wave of 2022–2023 companion Standards (44, 45, 46) all sharing the same 1 January 2025 effective date.

Relationship to IAS/IFRS & GFS – Comparison with IFRS 16

Comparison – IPSAS 43 vs IFRS 16

IPSAS 43 is drawn primarily from IFRS 16 (2016), amendments to March 2021, Leases.

TopicDifference

Terminology"Revenue," "operation," "accumulated surpluses/(deficits)," "segment" (IPSAS 43) vs "income," "business unit," "retained earnings," "business segment" (IFRS 16)

Identifying a leaseIPSAS 43 refers to BOTH "economic benefits" AND "service potential"; IFRS 16 refers only to economic benefits

Manufacturer/dealer lessorsIFRS 16 includes specific requirements; IPSAS 43 does NOT

Concessionary leasesIPSAS 43 includes DEDICATED measurement (lessees, §5) and disclosure (both sides, §9/§12) requirements; IFRS 16 has none

Comparison – IPSAS 43 vs GFS

IPSAS 43 applies a RIGHT-OF-USE model for lessees and a RISKS-AND-REWARDS model for lessors; GFS applies risks-and-rewards for BOTH GFS classifies leases into THREE types (financial, operating, resource); IPSAS 43 has only two (finance/operating), and only for LESSORS – lessees don't classify at all GFS financial leases recognize an underlying asset and a LOAN; IPSAS 43 lessees recognize a right-of-use asset and lease LIABILITY instead IPSAS 43's short-term/low-value RECOGNITION EXEMPTIONS have no GFS equivalent

Statement / Process Mapping

Master decision map

Does the contract convey the right to CONTROL an identified asset's use? → it's a lease (§2)
LESSEE side: is a §3 exemption (short-term/low-value) elected? → simple straight-line expense. Otherwise → recognize a right-of-use asset AND lease liability at commencement, at present value (§4)
Is the lease CONCESSIONARY? → measure the lessee's right-of-use asset at MARKET-RATE present value instead of contractual payments (§5)
LESSOR side: classify EVERY lease as finance or operating, using the risks-and-rewards test (§7)
Finance lease → derecognize the asset, recognize a net investment receivable (§8). Operating lease → keep the asset on the lessor's books, recognize lease revenue over time (§9)
SALE AND LEASEBACK? → test whether the transfer is a genuine sale under IPSAS 47; if yes, recognize gain only on the TRANSFERRED rights; if no, treat as a financing arrangement (§10, worked in §11)

Concept-to-statement mapping table

IPSAS 43 conceptStatement(s)Notes

Right-of-use assetSOFPSeparate line, or disclosed within another line

Lease liabilitySOFPSeparate from other liabilities

Depreciation & interest expenseSOFPerfPresented separately from each other

Principal repaymentsCash FlowFinancing activities

Interest paidCash FlowPer IPSAS 2's interest policy

Lessor net investment in a finance leaseSOFPReceivable, not the underlying asset

Lessor operating lease assetSOFPStays as the lessor's own PP&E/investment property

Seller-lessee gain on transferred rightsSOFPerfOnly the transferred-rights portion

Related Standards – Cross-Reference Map

How IPSAS 43 connects across the IPSAS body of literature

StandardNature of the connection

IPSAS 1 / 2Interest expense presentation and cash flow classification requirements (§12)

IPSAS 16Investment-property right-of-use assets follow the current value model where the lessee applies it to owned investment property (§6)

IPSAS 19Dismantling/restoration cost obligations built into right-of-use asset cost (§4)

IPSAS 21 / 26Impairment testing of right-of-use assets (§6)

IPSAS 27 / 31 / 32Scope exclusions – biological asset leases, intangible licensing, service concession arrangements (§1)

IPSAS 30Maturity analysis methodology applied to lease liability disclosures (§12)

IPSAS 41Lessor finance lease derecognition/impairment; sale-and-leaseback financial asset/liability treatment when a sale test fails (§8, §10)

IPSAS 45Right-of-use asset depreciation methodology and current-value-model alignment (§6)

IPSAS 47Determines whether a sale-and-leaseback transfer qualifies as a genuine sale (§10)

Quick-Reference Glossary

Right-of-use asset

An asset representing a lessee's right to use an underlying asset for the lease term.

Lease liability

A lessee's obligation to make lease payments, measured at the present value of unpaid amounts.

Finance lease

A lease that transfers substantially all the risks and rewards incidental to ownership of an underlying asset.

Net investment in the lease

The gross investment in a finance lease, discounted at the interest rate implicit in the lease.

Concessionary lease

A lease granted at below-market terms, with the right-of-use asset measured at market-rate present value.

Sale and leaseback

A transaction where an entity transfers an asset to another entity and leases that same asset back.

Financial statement key

SOFP Statement of financial position SOFPerf Statement of financial performance