International Public Sector Accounting Standard (IPSAS) 43 is a new lease accounting standard issued by the International Public Sector Accounting Standards Board (IPSASB). It replaces IPSAS 13 and aligns closely with IFRS 16, requiring public sector entities to recognise nearly all leases on balance sheet by accounting for a right-of-use (ROU) asset and a lease liability.
For public sector entities in New Zealand, IPSAS 43 introduces major changes in how leases are recorded, reported, and managed. Lease accounting shifts from an off-balance sheet model to one that emphasises financial transparency, accountability, and comparability. This means public sector organisations must prepare now to ensure a smooth transition and compliance with the new standard.
Key changes introduced by IPSAS 43
A single lease accounting model for lessees
Under IPSAS 13, leases were classified as either finance leases, which were recognised on the balance sheet, or operating leases, which were recorded as expenses and kept off the balance sheet. With IPSAS 43, lessees must now account for almost all leases on the balance sheet by recognising a right-of-use (ROU) asset representing the lessee’s right to use the asset and a lease liability representing the present value of lease payments due. This means that leases for buildings, vehicles, equipment, and even IT assets will now have a greater impact on financial statements than before.
Minimal changes for lessors
For lessors, IPSAS 43 largely retains the previous classification model. Finance leases require the lessor to remove the leased asset from its books and recognise a lease receivable, whereas operating leases allow the lessor to keep the leased asset on its balance sheet and recognise lease income over time. Although lessors see fewer changes, public sector entities that lease out assets must review their lease portfolios and ensure compliance with enhanced reporting requirements.
Special considerations for public sector entities
Public sector entities frequently enter into concessionary leases, also known as peppercorn leases, where assets are leased at below-market rates or nominal costs. IPSAS 43 provides specific guidance on how to recognise and measure these leases to ensure full transparency regarding the economic benefits received by public sector entities.
Why IPSAS 43 is important for the public sector
Increased financial transparency & accountability
IPSAS 43 ensures that lease obligations are no longer hidden off-balance sheet, providing a clearer and more accurate picture of a government entity’s financial position. This improves stakeholder trust, enhances auditability, and strengthens financial governance.
Improved lease management and decision-making
By recognising leases on the balance sheet, public sector organisations gain better visibility into their lease portfolios. This leads to more accurate budgeting and financial planning, improved cost control and resource allocation, better lease-versus-buy decision-making processes, and greater operational efficiency in managing leased assets.
Compliance with international standards and best practices
As IPSAS 43 aligns closely with IFRS 16, New Zealand’s public sector entities will be better aligned with global financial reporting practices, enhancing comparability across jurisdictions. This is particularly important for entities that engage with international donors, government bodies, and funding agencies.
Increased audit and reporting requirements
With leases now appearing on the balance sheet, public sector finance teams must ensure accurate data collection, classification, and reporting. This requires systematic lease data tracking and documentation, upgraded financial systems to manage compliance efficiently, and collaboration between finance, procurement, and asset management teams.
Preparing for IPSAS 43 implementation
To ensure a smooth transition, public sector entities should first conduct a lease inventory by identifying and documenting all active lease agreements, including embedded and concessionary leases. Next, they should assess lease classification to determine which leases must be recognised under IPSAS 43. Organisations must also upgrade systems and processes by implementing lease accounting software that can automate calculations, ensure accuracy, and facilitate compliance. It is crucial to engage with auditors early in the process to discuss transition strategies, key assumptions, and accounting judgments to avoid complications later. Training internal teams, including finance, procurement, and asset management personnel, will help them understand the new requirements and implications. Finally, establishing a well-structured transition plan with a clear timeline, resource allocation, and key milestones will ensure readiness before IPSAS 43 becomes mandatory.
Anticipated challenges in implementing IPSAS 43
Data collection & lease identification
Many organisations do not have centralised lease data, which makes it difficult to locate, verify, and standardise lease agreements. Public sector entities must ensure they can identify embedded leases within service contracts, document historical lease agreements accurately, and account for leases with variable payment structures that require detailed analysis.
Determining the discount rate (Incremental Borrowing Rate - IBR)
IPSAS 43 requires lessees to discount lease payments using either the interest rate implicit in the lease (IRIIL), if available, or the incremental borrowing rate (IBR), if IRIIL is not readily available. Public sector entities may struggle to determine IBR due to a lack of historical borrowing data, making a standardised government approach necessary for consistency.
System upgrades and automation
Spreadsheets alone are not sufficient to handle the complex calculations required under IPSAS 43. Organisations should invest in dedicated lease accounting software that can automate lease calculations and financial disclosures, ensure compliance with reporting requirements, and maintain a full audit trail for lease modifications and reassessments.
Stakeholder engagement and training
Public sector entities must engage cross-functional teams, including finance, asset management, procurement, and IT, to ensure a smooth implementation process. Training on new reporting processes and system requirements will be essential to achieving compliance with IPSAS 43.
IPSAS 43 represents a major shift in public sector lease accounting, improving financial transparency, accountability, and operational efficiency. The transition may seem challenging, but early preparation, robust systems, and structured implementation plans can ease the process. Public sector entities in New Zealand must act now to assess lease portfolios, upgrade accounting systems, and train staff to ensure a seamless transition before IPSAS 43 takes full effect.
Want to learn more? Stay tuned for our upcoming in-depth articles, guides and checklists to help your organisation implement and comply with IPSAS 43.
