IFRS 16 new leases standard – impacts processes of lessees around the globe.
IFRS 16 (International Financial Reporting Standards) new leases standard takes effect from accounting periods beginning on or after 1 January 2019. The new leases standard – IFRS 16 – will require companies to bring most leases on-balance sheet from 2019.
The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognise assets and liabilities arising from a lease.
IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months unless the underlying asset is of low value.
A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.
In short, the standard requires any company that reports under IFRS to account for leases on their balance sheet, by recognising the right-of-use of the asset and lease liability. Analysts concur that this will have a particularly significant impact on financial statements of lessees where property and high-value equipment are concerned.
Impact on leases
- All leases will be accounted for on balance sheet as opposed to simply expensing periodically.
- Leases for right-of-use assets will in effect be treated similarly to a purchased asset and depreciated/amortised.
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