The new leases standard (AASB 16) will bring a number of changes and challenges beyond the financial reporting process. We look at the impacts.
AASB 16 will bring a number of changes and challenges beyond financial reporting.
Effective 2019, the new leases standard – AASB 16 (IFRS 16) – requires companies to bring the majority of operating leases on-balance sheet. Property and equipment leases previously recognised off-balance sheet will be accounted for as a right-of-use (ROU) asset and lease liability which will bring more transparency about a company’s lease commitments and change key financial metrics such as gearing ratios, asset turnover and EBITDA. Lessor accounting will be largely unchanged from the current leases standard, AASB 117 (IAS 17).
Implementation of the new leases standard is expected to pose financial and operational challenges beyond financial reporting. Not only will systems, processes and controls have to be modified to ensure complete and accurate capture of leasing data and judgments, but companies will have to assess and manage the impacts to, for example, debt covenants, credit ratings, leasing strategy, impairment testing and tax-effected accounting. Companies should not underestimate the effort, time and cost required to implement these changes.
We provide a range of services to help with your transition to AASB 16, including: