GovernanceRegulationIASB revamps standard for leasing

IASB revamps standard for leasing

A new accounting standard, called ‘IFRS 16 Leases’, will replace accounting requirements introduced more than 30 years ago.

The International Accounting Standards Board (IASB) today (13 January 2016) issued a new accounting standard, called IFRS 16 Leases, which will be introduced in January 2019.

IFRS 16 replaces accounting requirements introduced more than 30 years ago that the IASB says are no longer considered fit for purpose and is a major revision of the way in which companies account for leases.

It commented that leasing provides an important and flexible source of financing for many companies. However, the old lease accounting Standard (IAS 17 Leases) “makes it difficult for investors and others to get an accurate picture of a company’s lease assets and liabilities, particularly for industries such as the airline, shipping and retail sectors.”

Listed companies using IFRS Standards or US generally accepted accounting principles (GAAP) have an estimated US$3.3 trillion of lease commitments; over 85% of which do not appear on their balance sheets. That is because leases to date have been categorised as either ‘finance leases’ (which are reported on the balance sheet) or ‘operating leases’ (which are disclosed only in the notes to the financial statements).

“This somewhat arbitrary distinction made it difficult for investors to compare companies,” says the IASB. “It also meant that investors and others had to estimate the effects of a company’s off balance sheet lease obligations, which in practice often led to overestimating the liabilities arising from those obligations.

“IFRS 16 solves this problem by requiring all leases to be reported on a company’s balance sheet as assets and liabilities.”

“These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations,” added Hans
Hoogervorst, IASB chairman.

“The new standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.”

Related Articles

US sanctions on North Korean goods ramp up slavery compliance

Governance US sanctions on North Korean goods ramp up slavery compliance

3w Donna Westerman
Technology, MiFID II and 2027: The changing face of the post-trade industry

Regulation Technology, MiFID II and 2027: The changing face of the post-trade industry

1m Thomas Zeeb
IBOR replacement: a major change significantly affecting corporate treasurers

Governance IBOR replacement: a major change significantly affecting corporate treasurers

1m Sven Göggel
Bringing cryptocurrency to the front line  

Payments Bringing cryptocurrency to the front line  

2m Karen Vickers
Open Banking and data protection: Friends or foes?

Compliance Open Banking and data protection: Friends or foes?

2m Oana Dolea
PSD2 'most interesting' when combined with social media or government data

Banking PSD2 'most interesting' when combined with social media or government data

2m Victoria Beckett
Preparing for GDPR? Here’s four things to consider

More News Preparing for GDPR? Here’s four things to consider

2m Elliott Wiseman
What financial services can learn from the Uber breach when preparing for GDPR

Big Data What financial services can learn from the Uber breach when preparing for GDPR

2m David Beach