IFRS 16 Leases became effective on 1 January 2019, replacing IAS 17 and a number of interpretations. The former standard classified leases into operating or financing leases, with operating leases staying off the balance sheet of a lessee. However IFRS 16 requires all leases to come onto the balance sheet as a right-of-use asset and a lease liability, with the exception of short-term or low-value leases. With almost all companies using leases, this new standard brings trillions of pounds of new debt onto the balance sheets of corporate lessees, impacting on gearing and affecting loan covenants.
The accounting changes also extend to the P&L as the flat operating lease charge is replaced with depreciation, interest and possibly impairments. This brings a change to the pattern of expense in the P&L, affecting performance measures such as EBITA and performance related pay.
It is not just the financial statements and disclosure notes that will be affected. Managing the accounting requirements of IFRS 16 will bring increased demands on IT functions, accounting systems, processes and internal controls over the many judgements and assumptions made. Even identifying all the leases on transitioning to the standard will be challenging. Few companies hold a comprehensive list of all leases or the legal lease contracts and sometimes leases can be embedded in other contracts, requiring work to determine whether they need to be recognised alongside the explicit leases.
Quorum are delighted to offer a suite of webinars that will guide you through the detailed requirements of IFRS 16, from first-time adoption, identifying leases, and the accounting by both lessees and lessors.
These webinars are broken down into five 20-30 minute sessions, with exercises and illustrations to reinforce learning.