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 now – from 1 January 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 posing financial and operational challenges beyond financial reporting. Not only are systems, processes and controls having to be modified to ensure complete and accurate capture of leasing data and judgments, but companies are assessing and managing 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 and time is running out.
We provide a range of services to help with your transition to AASB 16, including:
What is your new strategy post implementation?
Whether you have completed your implementation and are already ‘live’, ready for ‘go live’, or still working through implementation steps, there will still be many aspects of the process to consider and/or review. To find out more, read our factsheet.