10 questions that could give you a head start in preparing for the new leases standard
We’ve all heard how the new leases standard – IFRS 16 – is going to make a real impact when it lands in January 2019.
Certainly, analysts can’t wait for it to kick in but many others have somewhat mixed feelings on what lies ahead.
OK – so not everyone will be equally affected… The larger the lease portfolio, the greater the impact on key reporting metrics. And the impact will vary by sector.
But all companies should know by now that they need to address how their business will adapt.
In our experience, preparation for change on this scale always takes time. The truth is that, long before 2019, all companies will need to gather significant data about their leases and make new estimates and calculations.
For some, the biggest challenge will lie in pulling together this data. For others, more judgmental issues will dominate, such as identifying which transactions contain leases. Everyone will at the very least face some compliance costs.
Early communication of the expected impacts will certainly be welcomed (and possibly demanded) by stakeholders. This is a crucial point. Let’s say for example that a company’s estimate of its lease liability is different from that previously estimated by an analyst… You can just imagine the resulting conversations – Interesting in all the wrong ways.
Half the battle will be in assessing how much the hit will cost, far enough in advance to take the right actions to avoid any nasty surprises.
To help companies size up the challenge they face, we’ve identified ten gating questions – grouped by topic.
Tackling each of these questions now can be a first step towards kick-starting the intended benefits of the new standard – namely an increase in the transparency and comparability of financial statements.
After all, the new leases standard is a great opportunity – For the first time, analysts will be able to see a company’s own assessment of its lease liabilities, worked out using a prescribed methodology that all companies reporting under IFRS will be able to follow.
Companies can expect a lot of interest in how their IFRS 16 lease liability compares with analyst expectations. Getting this right now can be a win-win for all concerned… for all sorts of reasons.These are the points I’ll be happily driving home when I speak at the IASB’s Conference on Leases in London on 20 May. I hope to see some of you there…
For now, please take a look at our Leases web article and SlideShare presentation for more resources and materials to help you get ahead in the build-up to this exciting new standard.
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