Long-Term Liabilities and Equity: practice question

Which statement best describes the key difference between lessee accounting under IFRS 16 and under US GAAP?

1. US GAAP requires all leases to be treated as finance leases, while IFRS 16 permits operating lease treatment
2. IFRS 16 and US GAAP both require a single finance lease model, differing only in the discount rate used to measure the liability
3. IFRS 16 requires a single model recognizing a right-of-use asset and lease liability for almost all leases, while US GAAP retains separate finance and operating lease classifications

Show answer and explanation

Correct answer: C

Explanation: IFRS 16 puts nearly all lessee leases on the balance sheet as a right-of-use asset and lease liability, whereas US GAAP still distinguishes finance leases from operating leases, the latter keeping a single straight-line lease expense. US GAAP does not force a single finance model, and the frameworks differ in classification, not merely in the discount rate applied.