IFRS 16 Leases fundamentally changes the financial reporting landscape for how lessees account for operating leases. The new standard effectively removes the operating leases classification and requires all lessees to show a lease liability and a corresponding right-of-use asset for all leases (with some limited exceptions).
Entities need to ascertain what actions need to be taken so as to allow them to prepare their financial statements using this new accounting standard. The changes can be complex and have effects beyond just the accounting treatment.
As the choices made will affect the way the performance of the business is measured and reported, it is vital to consider not only the commercial and practical issues, but also the tax implications of these changes.
Our experts in this area can help you establish the impact of these issues and advise on what actions you should be taking.
Impacts of IFRS 16 Adoption
The effect of adopting the new leases standard raises many questions such as:
- How will reported earnings be impacted?
- How will the balance sheet be impacted?
- Which processes and systems will need changing ?
- Which wider business planning activities will be affected?
- What staff training will be required?
- How will current agreements be affected?
Steps to Implementation
Adoption of IFRS 16 will involve judgement and the making of various choices as to how to apply the standard, including deciding which transition route to employ – entities need to consider the commercial and practical implications of a change to reported earnings, EBITDA and the presentation of their balance sheets.
IFRS 16 – Industry Heat Map
As a guide the heat map below considers the relative level of impact and complexity when adopting IFRS 16.
|Red denotes a high level of potential impact and complexity.
|Amber denotes a medium level of potential impact and complexity.
|Dark teal denotes a low level of potential impact and complexity.
Leases of transport / logistics
Leases of heavy items of equipment
Leases of infrastructure
Leases of equipment
Building and construction
Residential real estate construction