The International Financial Reporting Standard 16 (IFRS 16) is a new accounting standard that governs how companies report leases in their financial statements. The new standard requires companies to recognize almost all leases as assets and liabilities on their balance sheets, which makes it essential for enterprises and service providers to understand the implications of lease agreements.

The Master Service Agreement (MSA) is a legal document that outlines the terms and conditions of a business relationship between two parties. It serves as a reference document for delivering services, and it`s essential to include the implications of lease agreements in the MSA.

There are several considerations to keep in mind when drafting an MSA that complies with IFRS 16. First, it`s crucial to ensure that all lease agreements are included in the MSA and that the terms of each lease are outlined explicitly. The document should also include a description of how these leases will be accounted for in the financial statements.

Another critical consideration is the treatment of sub-leases. In many cases, service providers lease space from another company, and then sub-lease it to their clients. Under IFRS 16, these sub-leases must also be reported on the balance sheet, which means that service providers need to ensure that they`re accounting for these leases correctly.

The MSA should also include provisions for lease modifications. Under IFRS 16, lease modifications must be accounted for as if they were new leases. This means that the MSA should include language that outlines how modifications to lease agreements will be handled.

Finally, service providers should ensure that their MSA includes language that allows them to terminate or modify lease agreements as needed. This includes provisions for early termination, as well as provisions for how any termination or modification will be accounted for under IFRS 16.

In conclusion, the Master Service Agreement is a critical document for service providers, and it`s essential to ensure that it complies with IFRS 16. By including language that outlines the implications of lease agreements on the balance sheet, service providers can ensure that they`re accounting for leases correctly and avoiding potential accounting errors or discrepancies.