//IFRS 16 leases at a glance

IFRS 16 leases at a glance

IFRS 16 Leases

The new IFRS 16 standard for leases is one of the hot topics in finance departments. But what is it about? The key points in a short summary.

A new accounting standard for leases is coming

IFRS 16 Leases was issued by the IASB in January 2016. It will replace IAS 17 Leases for reporting periods beginning on or after 1st January 2019. The goal of the IASB was to create a comprehensive model and distinguish between leases and services based on who is controlling the asset.

What is the major impact on lessee contracts?

Accounting for lessee contracts changes fundamentally. Based on IAS 17, it was possible to classify leases as ‘Operate Lease’ and keep it off balance. This is not possible anymore and large proportions of previously not included contracts will now have a direct impact on the financial statements.

The new leasing standard requires to recognise a ‘right of use’ asset and a related lease liability for those contracts at the commencement of the lease with a similar accounting to the lease model under IAS 17.

There are still some exceptions like ‘contracts with a lease term of 12 months or less‘ or ‘contracts with a value lower than US $5,000‘, but beside that all lessee contracts within the scope of IFRS 16 have to be included in the balance sheet now.

What is the major impact on lessor contracts?

Accounting for lessor contracts remains mainly the same. The differentiation between ‘finance lease’ and ‘operate lease’ is still in place and is following the existing approach of IAS 17.

One main difference is the consideration of subleases. In case a leased asset is getting subleased, the ‘right of use’ asset and lease liability on the lessee side has to be decreased partially or fully depending on the sublease-portion.

Other changes are new disclosure statements and rules for lease modifications.

How does it affect the financial statements?

There is no easy answer on how IFRS 16 leases affects the financial statements. It depends on the mix contracts, but in general it might lead to the following results:

  • Increase in recognised assets and liabilities
  • Shift from operate expenses to finance cost

Based on this effect it is expected that larger portions of the lease payments will be shifted to early periods in order to decrease the on-balance liabilities and keep leasing attractive from a financial statement point of view.

CONCLUSION

LESSEE CONTRACTS

LESSOR CONTRACTS

Links

Leasing Software
2018-08-06T09:13:52+00:00 May 28th, 2018|IFRS 16|0 Comments