The new accounting standard for leases that becomes effective for accounting periods commencing on or after 1 January 2019 is set to fundamentally change the accounting for leasing transactions.
For lessee accounting, the new standard will no longer distinguish between finance and operating leases, resulting in almost all leases being recognised on the balance sheet. Lease contracts will result in a lease asset and lease liability.
The lease asset will have to be depreciated over its useful economic life, while the lease liability will be unwound through interest charged to the income statement over the lease term.
The new requirements appear to be similar to accounting for finance leases. However, the detailed calculations can be very different, particularly for changes in rent like CPI increases.
Read more: Everything you need to prepare for IFRS 16
The size of off-balance sheet assets and liabilities, and the lack of transparency around them, were the main drivers behind the IASB’s Leases project, which culminated in the issue of IFRS 16. It’s estimated that the present value of future off-balance sheet lease payments globally is currently more than US$2 trillion and the new standard aims to bring most of this value back onto company balance sheets.
The choice of transitional provisions will affect future profits and needs close attention.
This live chat of 23 May 2017 provided an opportunity to ask questions of our experts about the new leasing standard.
The expert panel:
- David Hardidge – Technical Director, Queensland Audit Office. Before joining QAO, Hardidge completed a contract for a hotel group to determine the impact of AASB 16 Leases.
- Ram Subramanian – Policy Adviser – Reporting, CPA Australia.
You may view the questions and answers in the Blyve window below or download an amended transcript.