IASB had released a new standard on leases which supersedes existing standard IAS 17. The significant impact of the new standard is on lessees’ books of accounts. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less.
Definition of Lease Asset
A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Control is conveyed where the customers have both right to direct the identified asset’s use and to obtain substantially all the economic benefits from that use.
Impact on Financial Statements
Increase lease assets & financial liabilities. An asset will be shown as the right to use of underlaying asset and liability is the obligation to make payment.
Finance cost & depreciation
Impact operating & financing activities
IFRS 16 going to impact with entities having material off-balance sheet leases under IAS 17.
Lessors are good to go whereas lessees have to bring leases on to their balance sheets.
A lessee can opt to apply the standard retrospectively.
Short term leases are not required to recognize assets and liabilities under IFRS 16.
Low-value assets are exempt.
How Can we Help You:
Conduct detail gap assessment under IFRS 16, Review the lease contracts and evaluate the impact on the financial statements of the Company. Create inventory of lease contract and provide tool to calculate the financial data for accounting purpose.