Implementing IPSAS 43 Leases: A Practical Guide for Government Organizations
The adoption of IPSAS 43, which became effective on January 1, 2025, marks a fundamental shift in how public sector entities account for leases. This new standard replaces the old risks-and-rewards model with a right-of-use approach, requiring lessees to recognize almost all leases on their balance sheet. For government organizations embarking on this journey for the first time, understanding the challenges ahead and learning from others' experiences can make the difference between a smooth transition and a costly struggle.
Understanding What IPSAS 43 Means for Your Organization
IPSAS 43 introduces a single lessee accounting model that eliminates the distinction between operating and finance leases for lessees. Instead, organizations must now recognize a right-of-use asset and a corresponding lease liability for virtually all lease arrangements. This change brings previously off-balance-sheet commitments into full view, providing stakeholders with a more accurate picture of the government's financial obligations and resources.
The standard applies to a wide range of public sector leases, including medical equipment, office premises, motor vehicles, high-value scanners and printers, warehouses, and other property, plant, and equipment. However, certain arrangements fall outside its scope, such as leases for biological assets, exploration for minerals and natural gas, intellectual property licenses, and service concession arrangement.
Building a Strong Foundation: Early Preparation Steps
Starting early cannot be overstated when it comes to IPSAS 43 implementation. Organizations that begin transition planning well in advance avoid the last-minute compliance scrambles that have plagued many entities. The preparation phase, which precedes formal adoption, typically lasts considerably longer than the actual transition period and requires significant groundwork.
Form a Cross-Functional Implementation Team
One of the most critical lessons from private sector IFRS 16 implementation is that lease accounting cannot be treated as solely a finance department responsibility. Many organizations discovered too late that legal, procurement, property, IT, and facilities management teams play essential roles in successful implementation.
Create a dedicated project team with clear leadership and representatives from all relevant departments. This team should develop a comprehensive project roadmap, coordinate timelines, manage communications across the organization, and ensure alignment at all levels. Assign specific responsibilities to each team member and provide training on IPSAS 43 fundamentals to everyone involved. Strong project management, supported by change management capabilities and effective communication, is essential throughout the process.
Conduct a Comprehensive Lease Inventory
The first major operational task involves identifying and documenting every lease arrangement across your organization. This process is often more time-consuming and complex than anticipated. Public sector entities frequently manage leases through decentralized records, inconsistent formats, and agreements embedded within broader service contracts.
Begin with a complete lease audit working collaboratively across procurement, finance, legal, and property teams. Many organizations discover they have far more lease arrangements than initially realized once they start looking systematically. Establish a centralized repository to serve as a single source of truth, ensuring all relevant lease agreements and supporting documents are properly accounted for and validated.
Pay particular attention to identifying embedded leases—those hidden within broader service agreements or supply contracts. These arrangements are easily overlooked but must be accounted for under IPSAS 43 if they meet the definition of a lease. To qualify as a lease, an arrangement must convey the right to control the use of an identified asset for a period of time in exchange for consideration.
Navigating the Technical Complexities
Determining What Qualifies as a Lease
Not all agreements that appear to be leases actually meet the standard's definition. To constitute a lease under IPSAS 43, an arrangement must involve an identified asset (either explicitly or implicitly specified) where the lessee has the right to obtain substantially all economic benefits from using the asset and the right to direct how and for what purpose the asset is used.
Develop internal guidelines and decision trees to help staff consistently identify and classify lease arrangements. This is particularly important for determining whether contracts contain embedded leases or represent service arrangements. Hold meetings with relevant departments to explain the lease definition concepts and ensure everyone understands what to look for in existing contracts.
Understanding Concessionary and Peppercorn Leases
Public sector entities often provide or receive leases at below-market terms, including leases for nominal or zero consideration (commonly called peppercorn leases). These concessionary arrangements require special consideration. While the IPSASB has issued specific guidance on concessionary leases through amendments effective January 1, 2027, organizations implementing IPSAS 43 now should develop clear policies for identifying and accounting for these arrangements.
Concessionary leases often contain conditions or compliance obligations that are not well expressed in lease documents. Establish frameworks for distinguishing between true leases, sub-leases, and service arrangements in shared occupancy situations common in government operations.
Calculating the Lease Liability and Right-of-Use Asset
One of the most technically challenging aspects of IPSAS 43 involves measuring the initial lease liability. Organizations must calculate the present value of future lease payments over the lease term, which requires determining an appropriate discount rate.
The discount rate should be the interest rate implicit in the lease if readily determinable. In most cases, however, public sector entities will need to use their incremental borrowing rate—the rate they would pay to borrow over a similar term, with similar security, the funds necessary to obtain an asset of similar value in a similar economic environment. This determination can be particularly challenging for government entities that may not have traditional borrowing arrangements.
To establish an incremental borrowing rate, consider the lease's specific terms and conditions, refer to readily observable starting points (such as rates the entity pays to borrow for similar assets or property yields for property leases), and adjust these observable rates as needed to reflect your organization's specific circumstances.
The right-of-use asset is initially measured at cost, which includes the initial lease liability amount, any lease payments made at or before the commencement date (less incentives received) , initial direct costs incurred, and estimated costs for dismantling, removing, or restoring the underlying asset which can be automatically factored in with Cliclease. Subsequently, the right-of-use asset is typically measured using the cost model, with depreciation calculated over the shorter of the lease term or the asset's useful life (also automatically configured with Cliclease.
Determining the Lease Term
Establishing the appropriate lease term requires judgment, particularly when renewal or termination options exist. The lease term comprises the non-cancellable period plus any periods covered by extension options the lessee is reasonably certain to exercise and periods covered by termination options the lessee is reasonably certain not to exercise.
This assessment becomes complex with government arrangements, particularly host-country agreements for international organizations or long-standing informal occupancy arrangements common in the public sector. Changes in assessed lease terms require remeasurement of both the lease liability and right-of-use asset, making accurate initial determination important.
Recognizing Exemptions and Practical Expedients
IPSAS 43 provides two important exemptions that can significantly reduce the compliance burden for certain leases:
Short-Term Leases: Leases with terms of 12 months or less (with no purchase option) may be accounted for using a simplified approach that recognizes lease payments as expenses on a straight-line basis over the lease term.
Low-Value Asset Leases: Leases where the underlying asset has a low value when new may also be excluded from the right-of-use model. This election is made on a lease-by-lease basis rather than by asset class.
Organizations should carefully evaluate which leases qualify for these exemptions and develop policies for their consistent application. While these exemptions reduce initial implementation work, remember that you'll still need systems to track and account for these leases appropriately.
Critical Pitfalls to Avoid
Failing to Allocate Sufficient Resources
Perhaps the most common mistake in IPSAS implementation is underestimating the resources required. The transition demands significant time, attention, and expertise across multiple departments. High implementation costs consistently emerge as a major challenge, driven by the amount and complexity of information required for compliance.
Cliclease Offers no implementation fees in general.
Budget adequately for external consultants if needed, but ensure appropriate knowledge transfer to internal staff for long-term sustainability. Plan for IT system upgrades, development of guidance materials, targeted stakeholder engagement activities, and comprehensive training programs. Insufficient financial and human resources consistently undermine implementation efforts.
Underestimating the Skills Gap
Many public sector organizations discover they lack the skills, competence, and staffing levels needed to implement IPSAS 43 successfully. The shift to accrual accounting under IPSAS generally requires substantial upskilling, and the technical complexity of lease accounting amplifies this challenge.
Develop a formalized training plan early in the process. Training should extend beyond finance staff to include procurement officers, legal teams, property managers, and others who interact with lease agreements. Some jurisdictions have created pools of skilled staff who can be deployed to entities needing assistance. Consider both technical IPSAS training and broader change management training to help staff adapt to new processes and requirements.
Relying on Inadequate Systems
Organizations that initially relied on spreadsheets for IFRS 16 implementation quickly discovered these tools lack the scalability, audit trail functionality, and accuracy required for ongoing lease management. Manual tracking becomes error-prone and time-consuming when dealing with lease modifications, remeasurement calculations, and compliance reporting.
Assess your current systems early and explore dedicated lease accounting software that supports centralization, automation, and compliance reporting. The right technology solution can significantly reduce administrative burden and improve long-term accuracy. However, ensure any system chosen integrates properly with your existing financial management information systems.
Cliclease has gone through extensive testing by current clients and highly experienced CPAs and IPSAS experts, offering not only Accuracy, scalability, audit trail and fully compliant reporting backed-up with great team to support your need 24/7.
Treating Implementation as a Finance-Only Project
This mistake has been repeatedly observed in private sector IFRS 16 implementations. Lease accounting touches virtually every part of a public sector organization. Legal teams interpret contract terms. Procurement manages vendor relationships. Property and facilities teams handle day-to-day lease operations. IT supports system implementation and data management.
Without broad engagement, critical information slips through the cracks, leading to incomplete lease inventories, misclassified arrangements, and ongoing compliance failures. Establish clear governance structures with defined responsibilities across all relevant functions from the outset.
Inadequate Data Quality and Documentation
Poor documentation and record-keeping consistently emerge as major compliance obstacles. IPSAS 43 requires maintaining comprehensive records of lease agreements, payment schedules, modifications, renewals, and key judgments. Without robust documentation, organizations face difficulties during audits and struggle to demonstrate compliance.
Implement structured documentation practices from the beginning. Create standardized templates for capturing essential lease information. Establish clear approval workflows for lease changes and modifications. Many jurisdictions transitioning to accrual accounting have developed specific policies and guidelines for asset and liability recognition that support IPSAS implementation.
Neglecting Ongoing Compliance
A less visible but equally critical pitfall involves failing to maintain compliance after initial implementation. Leases evolve through extensions, modifications, and early terminations, all requiring accurate tracking and reassessment. Without clear governance and processes for managing changes, errors and omissions quickly accumulate.
Develop a sustainable lease management framework that includes defined processes for change tracking, regular internal audits, and continuous training for relevant staff. Schedule periodic reviews and build accountability into day-to-day operations to ensure your organization remains IPSAS 43-ready year after year.
Delaying Auditor Engagement
Many organizations that implemented IFRS 16 faced unexpected auditor feedback during compliance reviews, particularly when interpretations varied or key assumptions were not well-documented. These late discoveries led to last-minute adjustments and financial statement delays.
Engage with auditors early in your implementation process. Share your approach to lease identification, classification decisions, discount rate determinations, and significant judgments. Early collaboration helps ensure shared understanding and reduces the risk of disagreements during financial statement audits. This proactive engagement assists in ensuring a smoother transition.
Inadequate Stakeholder Engagement and Change Management
Successful IPSAS implementation requires political will, senior management support, and buy-in across all levels of the organization. The cultural change necessitated by new accounting standards should not be underestimated. Without effective engagement, staff resistance and stakeholder skepticism undermine even well-planned implementation efforts.
Use all available means of communication, training, and dissemination to build awareness throughout the implementation journey. Develop a communication plan that clearly articulates the benefits of IPSAS 43 adoption and addresses concerns about the change. Different and innovative communication methods may be needed to convey messages effectively across diverse public sector audiences.[
Ensure top leadership understands and champions the reform. IPSAS adoption requires support from senior government officials, public accounts committees, and audit and finance functions. The change will not succeed if imposed from above without genuine organizational commitment.
Practical Implementation Strategies
Choose the Right Transition Approach
IPSAS 43 offers flexibility in how you transition to the new standard. Organizations can adopt either a full retrospective approach (restating prior period comparatives) or a modified retrospective approach (recognizing cumulative effects at the date of initial application). Most public sector entities find the modified retrospective approach more practical, as it reduces the burden of restating historical information.
Consider a Phased Implementation
Rather than attempting a "big bang" implementation across all entities simultaneously, many successful IPSAS adopters use a phased approach. This strategy allows organizations to demonstrate early wins, progressively build skills and expertise, and upgrade IT systems without disrupting ongoing operations.
Past experiences illustrates the risks of simultaneous implementation across all entities—the country faced resource scarcity and high consultancy costs when adopting standards for all entities on the same date. A phased approach also enables organizations to adjust their strategy based on lessons learned from early implementation waves.
At Cliclease, we will accompany you in your transition with highly experiences profiles and solid history of successful transition for first time adopters.
Establish Strong Governance Structures
Create formal governance arrangements to promote, manage, and assist in the transition. Many successful implementations establish steering committees that provide oversight and strategic direction while technical working groups handle day-to-day implementation tasks. These structures should have clear authority, adequate resources, and regular reporting mechanisms to senior leadership.
Legal and regulatory frameworks must support the implementation. Early in the process, identify necessary legal changes, new regulations, and governance practices required to accommodate IPSAS 43. A government standards body or finance committee should consider and approve accounting policy decisions.
Learn from Others' Experiences
Take advantage of experiences from jurisdictions that have already implemented similar standards. The private sector's IFRS 16 implementation provides valuable lessons applicable to public sector IPSAS 43 adoption. International organizations like the United Nations system have documented their implementation challenges and solutions, particularly regarding shared spaces, sub-lease arrangements, and host-country agreements.
Participate in knowledge-sharing forums and communities of practice focused on IPSAS implementation. Organizations like the World Bank's PULSAR program facilitate international experience exchange and dialogue among practitioners. This networking helps identify best practices and avoid repeating others' mistakes.
Maintain Institutional Memory
Lengthy implementation timescales create challenges for retaining institutional memory and tacit organizational knowledge. Staff turnover during multi-year implementation projects can result in lost expertise and repeated mistakes. Document decisions, rationales, and lessons learned throughout the implementation process. Create knowledge repositories that new team members can access. Consider overlapping transitions when key staff move to new roles.
Building for Long-Term Success
IPSAS 43 implementation is not merely a technical accounting change—it represents a fundamental shift in how public sector entities perceive and manage their lease obligations and overall financial reporting. The new standard enhances transparency and accountability, providing better information for decision-making and improved resource allocation.
The transition, while challenging, offers opportunities to strengthen lease governance, improve operational efficiency, and drive better financial insights. Organizations that invest in proper planning, build strong cross-functional teams, implement appropriate technology solutions, and develop sustainable compliance frameworks position themselves not just to meet the standard's requirements but to derive genuine value from improved lease management.
Success requires viewing IPSAS 43 implementation as an organizational transformation rather than simply an accounting project. The benefits of accrual-based lease accounting—complete visibility of lease obligations, better comparability across entities, and more informed strategic decision-making—justify the investment required. With careful planning, adequate resources, and commitment to learning from others' experiences, government organizations can navigate this transition successfully and establish strong foundations for future financial management excellence.