What will change?
Under IFRS 16, both finance and operating leases will be brought onto the balance sheet. Essentially, the lease liability and the corresponding right-of-use asset must be recorded on the balance sheet for leases of property, plant, or equipment with terms in excess of twelve months.
Why are there changes to lessee accounting?
The IASB wants to improve transparency of financial statements so that stakeholders have a clearer picture of an entity’s financials. The changes will achieve this by eliminating one of the largest forms of off-balance sheet accounting.
When do the new rules take effect?
Early adoption by all entities is possible.
Organisations will need to be compliant for annual reporting periods beginning on or after the 1st of January 2019.
Does this affect existing leases or just new leases?
The new rules apply to all lease contracts that are in place on the effective date and not only to leases that begin after the new rules come into effect.
Many organisations are deep into the process of centralising lease data into a new system that supports IFRS 16 compliance, and some are just beginning. The task ahead can seem daunting but there are several steps organisations can take that will make the transition more manageable. Contact us at firstname.lastname@example.org or on +44 (0) 1689 892 137 for more information on how we can help you prepare.