As a result of the new lease accounting standard IFRS 16, virtually all leases will be recognized in the lessee‘s balance sheet. This involves major changes, as the new standard completely eliminates off-balance sheet accounting for leases and has additional effects on many important key figures.
To be introduced by January 1, 2019
The new IASB standard IFRS 16, which replaces IAS 17, requires lessees to recognize all leases in the balance sheet – with the exception of short term leases (term < 12 months) and small ticket leases (purchase value < $5,000). The previous distinction between finance leases and operating leases no longer applies.
IFRS 16 affects the balance sheets of all lessees, as leasing values will be capitalized as assets in the future. Balance sheet ratios may decrease as a result of this balance sheet extension, in particular the equity ratio.
Under IFRS 16, lease payments are recognized as interest and repayment components instead of operating expenses. In addition, the asset is depreciated over its scheduled useful life. As a result, the expense is no longer included in the EBITDA but is reported in the EBIT or in the financial result. This leads to a shift in the results within the leasing period (higher interest expense at the beginning, which is then decreased over the course of the term) and therefore also to changes in the P&L key figures.
Challenges for lessees
- Collecting, structuring and documenting all existing and future leasing contracts within the company or group
- Reassessment of on-balance sheet leases
- Changes in operational calculations and performance indicators
Unit4 Prevero IFRS 16 app
Based on the Unit4 Prevero CPM and BI platform, an application was developed that allows a quick and easy introduction of IFRS 16 and can be implemented without having to invest a large amount of time and costs.
Get in touch with one of the Unit4 Prevero team today for more detailed information on what we could do for you and your business, or fill out our simple contact form to arrange your free demo and consultation with the Unit4 Prevero team.