IFRS 16 Leases – Implementation considerations in a Belgian context
Focus on car and real estate leases
After a very long and controversial standard-setting process on lease accounting, 2019 is the first year IFRS 16 – Leases becomes mandatorily effective for entities reporting under IFRS. With this new standard, the International Accounting Standards Board ensure that significant rights and obligations resulting from lease contracts are properly reported in the financial statements of the lessee, which also allows a meaningful comparison between companies that have different practices with respect to the funding of their fixed assets.
The purpose of our article is to share some common interpretation and implementation challenges observed on the Belgian market in the (initial) application of IFRS 16.
The application of IFRS 16 introduces significant changes and challenges for many companies, not only in terms of financial reporting but also from an operational point of view. As of 1 January 2019, the new lease standard requires to account for almost all leases on balance sheet of the lessee.
The enclosed article first provides a high level summary of the key principles of IFRS 16. Then it elaborates on the significant accounting judgements to be made in applying IFRS 16 (namely the identification of lease contracts and lease components, the assessment of the lease term, and the measurement of the lease liability). Finally it shares practical considerations and interpretations on the implementation of this new standard to the most common and significant lease contracts encountered in the Belgian environment: company car leases and real estate leases.
The article is not meant to cover all potential aspects of IFRS 16 and focuses on the situation of the lessee.