Implications of the new leasing standard for the telecommunications sector
How will IFRS 16 Leases affect telecommunication companies?
The International Accounting Standards Board (IASB) has published IFRS 16 Leases. This article explains how this new standard will affect telecommunication companies.
What is IFRS 16 Leases?
IFRS 16 sets out a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. One of the most notable aspects of IFRS 16 is that the lessee and lessor accounting models are asymmetrical.
For lessees, IFRS 16 introduces a single accounting treatment, recognition of a right-of-use asset and a lease liability.
For lessors the current finance and operating lease distinction and accounting remains largely unchanged.
IFRS 16 will replace IAS 17 for reporting periods beginning on or after 1 January 2019.
IFRS industry insights
The enclosed publication highlights issues from the new leasing standard that will be of interest to those in the telecommunications sector.
- Determining whether a contract gives control of a specific asset may require a significant level of judgement for contracts such as network services.
- Leases with a term of 12 months or less and containing no purchase options, and those for low value assets may be accounting for as services.
- Previous high level analysis of current disclosures indicates a possible average increase in EBITDA margin of 2,5 percentage points.
- Previous research of the world’s largest 50 telecoms operators suggest as much as $125 billion right-of-use assets will be added to balance sheets, and the level of gross debt increase by between 15-20%.