In SAP RE-FX, two dates look alike, have similar names, and have completely different effects on IFRS 16 valuation. Mixing them up means risking an understated lease liability, incorrect depreciation, and a financial statement disclosure that does not reflect the economic reality of the lease.
Two dates, two philosophies
The Probable End represents the period you consider reasonably certain for the lease. It includes renewal options whose exercise is deemed probable, even if they are not contractually binding. It is an accounting judgment, open to revision, that must reflect the company’s actual intent.
The Absolute End is the date beyond which the contract can no longer exist. It is a technical and legal limit. In SAP RE-FX, once this date is reached, valuation stops for good – no recalculation possible, no subsequent time slot.
| Date | Nature | What it drives in SAP | Can it be changed? |
|---|---|---|---|
| Probable End | Accounting judgment | NPV calculation – scope of discounted cash flows, value of the lease liability and right-of-use asset | Yes, through a new time slot at each significant event |
| Absolute End | Technical and legal limit | Hard boundary of the valuation – also used by SAP for early termination | Only for early termination or final contractual end |
What the system does with each date
The Probable End drives the net present value calculation. It determines the scope of discounted lease payments, and therefore the value of the lease liability and right-of-use asset at initial recognition. If you enter a Probable End that is too short – for example by ignoring probable renewal options – your liability is understated from day one.
The Absolute End drives the technical limit of the valuation. SAP treats it as a hard boundary. It is also the date the system relies on for early termination – and that is where the confusion causes the most costly errors.
The early termination trap
When a lease is terminated before its term, the natural reflex is to change the Probable End and bring it back to the termination date.
That is a mistake. SAP Note 2662137 is explicit: for early termination, only the Absolute End should be used. The Probable End does not trigger the absolute end of valuation in SAP. The system keeps calculating cash flows beyond the termination date, generates postings that should not exist, and leaves a residual balance on the lease liability and the RoU asset – one that will never clear automatically.
The practical result: a lease liability that stays on the balance sheet after the lease has actually ended, with fictitious interest expense posted every month, until someone spots the anomaly – sometimes several closings later.
The correct sequence for a termination:
- Set the Absolute End to the effective termination date.
- Create a new time slot with a Start of Consideration on the day after termination.
- Regenerate the cash flow. Skip a step and you leave ghost postings in the system.
A second trap: the validity of assigned objects
Less well known, but just as impactful. Every IFRS 16 contract in SAP RE-FX is linked to a valuation object – a cost center, a real estate object, an order. That object has its own validity end date.
If the object’s validity expires before the contract’s Absolute End, SAP automatically sets the absolute end of valuation to the object’s expiry date – not the contract’s.
Seemingly harmless changes to CO objects – closing a cost center, reorganizing an entity – can silently truncate a lease valuation without any warning in SAP. The lease liability stops being updated, depreciation stops, and nobody notices until the quarterly reconciliation.
The basic rule: never assign an object whose end date is earlier than the lease’s Absolute End.
Three reflexes for SAP RE-FX teams
- The Probable End gets revised. At each significant event – probable renewal, change of intent – it must be updated through a new time slot. It is an accounting act, not a technical one.
- The Absolute End changes in only two cases: early termination or final contractual end. Outside those cases, touching it breaks the valuation.
- For a termination, the order is mandatory: Absolute End at the effective date → new time slot with Start of Consideration on the following day → cash flow regeneration. Skip a step and you leave ghost postings in the system.
IFRS 16 is a standard built on judgment. SAP RE-FX is a system built on rules. The Probable End belongs to the world of judgment. The Absolute End belongs to the world of rules. Understanding that boundary prevents most of the valuation anomalies found in production.
Technical reference: SAP Note 2662137, questions 1 and 22.
