IFRS 16 – SHINING A LIGHT ON LEASE FINANCING

On 1 January 2019 the new IFRS 16 accounting standard came in to force.  The new standard provides much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows.  They require companies to recognise leases as assets and liabilities on their balance sheets. The new rule will have a major impact on how companies report their financial results and on how they make business decisions regarding leased assets, from vehicles and machinery to land, office space and more.

Four key changes

In a nutshell, IFRS 16 will bring about four key changes:

  • Eliminating the classification of leases as operating leases and finance leases.
  • Introducing a single lessee accounting model.
  • Requiring lessees to recognise leased assets and any related financial obligations to make future lease payments for all leases with a term of more than 12 months, and
  • Distinguishing between leases and service contracts based on whether a customer controls the use of the asset.

Practical steps

  • Make time to visit the IFRS website to learn about all the new changes and to assess their full implications.
  • Once you have a broad understanding of the requirements of the new regulations, plan new ways of gathering information in one place and applying the same calculations to all relevant lease holdings.
  • Take stock of your financial reporting tools and assess whether they can handle the requirements of the IFRS 16 model.  If you know that your business only uses spreadsheets to record lease information then now is the time to consider implementing a solution that gathers all the information required and presents it all in one, secure location.
  • Investigate whether IBM Planning Analytics could help your business make the introduction of the new regulations less arduous.

If you would like to know more about we can help your business deal with the requirements of IFRS 16 then please get in touch and ask us about our bespoke software solution.