Article

Leases

A guide to IFRS 16

This publication is intended to assist preparers and users of financial statements to understand the impact of IFRS 16 - Leases, effective for accounting periods beginning on or after 1 January 2019 and which will replace IAS 17 - Leases.

What is IFRS 16 - Leases

The International Accounting Standards Board (IASB) has published IFRS 16 - Leases in January 2016.

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lease accounting model, requiring lessees to recognise a right-of-use asset and a lease liability for all leases unless the lease term is 12 months or less or the underlying asset has a low value.

For lessors, IFRS 16’s approach remains substantially unchanged compared to the current standard IAS 17, i.e. lessors should continue to classify leases as operating or finance leases.

For lessees, the main expected impacts are:

  • an increase in recognised assets (right-of-use assets) and lease liabilities;
  • more lease expenses recognised in the early periods of a lease, and less in later periods;
  • a shift in lease expense classification from operating expenses to financing costs and amortisation, with some exceptions; and
  • for entities presenting cash flows related to interests as cash flows from financing activities, a shift of the payments previously associated with operating leases (in the cash flows from operating activities) to the financing category.

How to deal with this transition?

Data gathering will require most time and effort, certainly when lease contracts are spread over your organisation in different countries. Furthermore, contracts can be available in electronic or paper format.

The enclosed publication gives an overview of the key steps to be taken in assessing the impact of this new standard.

Timing for transitioning to IFRS 16 - Leases

The standard provides different options for a lessee to apply IFRS 16.

The following decision tree presents the different transition routes for the lessees.

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