The new leases standard brings a suite of new disclosures, including both transition focussed and ongoing disclosures. Here we respond to some of the more common questions we are hearing from lessees on the transition disclosures required for both half-year and annual reporting periods under AASB 16 Leases.
On 1 January 2019, the date of initial application of AASB 16, a company applies AASB 16 using a modified retrospective approach. It recognises lease liabilities of $2.5 million and right-of-use-assets of $2.1 million, with the difference recognised in retained earnings at that date. The company disclosed operating lease commitments of $2.8 million in its 31 December 2018 financial statements.
The company applies the short-term lease exemption to all classes of assets. The company considers that the impact of adopting AASB 16 is material.
The company applied the following practical expedients on transition:
Question 1: Are there any specific disclosures the company must make in its half-year report for the six months ending 30 June 2019?
Interpretive response: There are no new lease disclosures included in AASB 134 Interim Financial Reporting. However, in the half-year report, consistent with AASB 134, the company should explain:
Companies should also consider including the specific transition disclosures that are required in annual financial statements by AASB 16, and those required by paragraph 28 of AASB 108. This assessment will be a matter of judgement. For example, the company may disclose that it has grandfathered its assessment of whether an arrangement was a lease under the previous standards.
Interpretive response: In addition to the quantitative impacts and changes in accounting policies – additional specific transition disclosures are required. For example, in the first annual financial statements the company will need to disclose it has adopted the following practical expedients**:
As the company elects to apply the modified retrospective method to transition, it must also disclose:
Additional annual disclosures required by AASB 16 are discussed in other AASB 16 Check articles.
Otherwise, previous operating leases will be recognised on-balance sheet on transition to AASB 16.
If you would like to discuss the implementation of the new standard for your organisation, please contact us.
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