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From the January 1, 2019, came into force in Mexico Financial Reporting Standard D-5 (NIF D-5), Leases, which profoundly transformed the way companies record their leases in their financial statements. This mandatory standard focuses on the accounting treatment of the lessee, while the lessor's accounting remains essentially unchanged.
This update aims to provide greater transparency and consistency in financial reporting, ensuring that lease obligations are properly reflected on the balance sheet.
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Accounting transformation of leases under NIF D-5
Before NIF D-5, leases were classified as operational or financial, and only the latter were reflected in the financial statements in greater detail. In contrast, operating leases—common in sectors such as retail, transportation, and services—were treated as simple recurring expenses, without showing their real equity effects.
Today, under the new approach, the tenant must recognize in its balance two key elements:
- A right-of-use asset of the leased property.
- A lease liability which represents the obligation of future payment.
This allows for a more accurate display of the resources used and the contractual commitments made.
Relationship with IFRS 16: Revaluation of assets
NIF D-5 is largely aligned with the IFRS 16, applicable in international standards. However, there is an important difference:
NIF D-5 does not allow the revaluation of the right-of-use asset, while IFRS 16 does contemplate it under certain accounting models (such as the IAS 16 revaluation model).
This technical difference may be relevant to multinational entities or those that report under dual standards, as they could present different figures depending on the accounting framework used.
Furthermore, the Mexican standard also differs in the treatment of sales contracts followed by subsequent leases, which requires a more detailed analysis in leaseback type operations.
What is considered a lease under NIF D-5?
The standard defines a lease as a contract that grants the right to control usage of an identified asset for a specified period in exchange for consideration.
The parties involved are:
- Lessor: Grants temporary use of the asset.
- Tenant: Pay for the right to use that asset, with an option to purchase in some cases.
The contract may include options for extension or early termination, which should be evaluated based on the reasonable security whether or not they will be exercised. This directly affects the accounting term of the lease and, therefore, the amount of the asset and liability to be recorded.
Tax and financial implications for the tenant
One of the main impacts of NIF D-5 has been fiscal and operationalThe recognition of these assets and liabilities affects:
- Financial reasons such as leverage and working capital.
- Profitability and efficiency indicators, such as return on assets (ROA).
- Tax planning, because the lease deduction is now broken down into financial expense and depreciation.
In addition, it requires companies to establish stronger controls over their lease contracts, review clauses, implicit interest rates, and accurately assess the expected useful life of the leased asset.
Lessors and NIF D-5
In contrast, for the landlords, NIF D-5 maintains the traditional classification between financial and operating leases.
- In the case of the financial, the asset is written off and a loss is recognized receivable.
- In the operatives, the asset remains on the lessor's balance sheet, with lease income being recognized periodically.
Strategic considerations for companies and corporate governance in relation to NIF D-5
For companies operating in sectors with a high proportion of leasing (infrastructure, logistics, technology), proper application of this standard is critical.
From the point of view of the corporate governance and auditing:
- A deep understanding of the financial impact of leases is required.
- It is essential for the Boards of Directors have clear and timely information on how contracts affect the balance sheet, covenant compliance, and financial strategy.
- Internal auditing should strengthen its processes for validating assumptions, applying discount rates, and analyzing contract extensions.
NIF D-5 represents an evolution in the way leases are represented in Mexican accounting. By requiring the capitalization of the right of use, it offers a more realistic view of the use of assets and the commitments acquired by companies.
Although it does not allow the revaluation of the right-of-use asset, as IFRS 16 does, the standard promotes greater financial transparency and encourages best practices in contract management.
Complying with NIF D-5 is not only an accounting requirement, but an opportunity to Strengthen the financial structure, optimize decision-making, and improve communication with investors and governing bodies.
