CPI resets: remeasure, or not?

Many property leases step up each year with a consumer price index. The contract is clear about the cash. The accounting is less obvious, and IFRS 16 and ASC 842 answer differently.

At commencement: use today’s index, not a forecast

Under both standards, variable payments that depend on an index or rate are included in the initial lease liability using the index or rate at the commencement date. You do not bake in expected inflation.

IFRS 16: remeasure when the cash flows change

When a change in the index changes the future payments, IFRS 16 requires the lessee to remeasure the lease liability to reflect the revised payments. The discount rate is ordinarily unchanged, unless the change comes from a change in floating interest rates. The adjustment goes against the right-of-use asset.

ASC 842: wait for a remeasurement event

Under ASC 842, a change in an index does not by itself trigger remeasurement. The increase is recognized as variable lease cost in the period it is incurred. The liability is updated to the then-current index only when the lease is remeasured for another reason, for example a change in lease term or a modification that is not a separate contract.

Getting it right in practice

• Record the index series, base, reference period and publication vintage you used.
• Record each reset as a dated observation with evidence, not as an edited payment.
• Let each book apply its own trigger instead of copying one result into the other.
• Keep contractual dues, liability-measured amounts and variable cost visibly separate.

This article explains general concepts and is not accounting advice. Apply the standards to your own facts with a qualified professional.