IFRS

IFRS 16 - Prepare for lease accounting changes

Sarah Carroll Sarah Carroll

The new leasing standard - IFRS 16 'Leases' has been issued by the IASB. The core principle of the new standard is that lessees should recognise all leases on their balance sheet.

IFRS 16 - Timetable to comply

The new leasing standard becomes effective for fiscal years beginning on or after 1 January 2019 with earlier adoption permitted if IFRS 15 'Revenue from Contracts with Customers' has also been applied.

Areas where you might encounter change

The new pronouncements may not only necessitate updates to existing financial accounting policies, procedures and systems, but also affect controls and contracts. Even if accounting policies are not affected, significant new disclosures and lease management activities are required that suggest the need for planning.

We believe that most companies will need to consider making changes in the following areas:

  • accounting policies and disclosures
  • application of judgment and estimation
  • related internal controls that will require updating, if not overhauling, to reflect changes in accounting policies and processes
  • systems to capture, process and maintain new lease data and for ongoing maintenance
  • corporate and other taxes
  • debt covenant compliance.

Considerations for change

IFRS 16 requires all leases to be accounted for 'on balance sheet', a major departure from the requirements of IAS 17 in respect of operating leases. There is a single accounting model for all leases (similar to that of finance leases under IAS 17), with the following exceptions:

  • leases of low value assets (of approximately US$5,000)
  • short-term leases (less than 12 months).

Despite being a joint project between the IASB and the FASB, there are a number of differences between the final standards, IFRS 16 and ASC 842, which are outlined in the table below.

IFRS 16 and ASC 842 differences

Methodology

Our lease transformation process is collaborative with a focused outcome-based approach. Grant Thornton and your team will operate seamlessly together and communicate regularly throughout the process to provide you with the most comprehensive service. The three phases of our methodology, from analysis through to deployment, enables us to demonstrate value to your company.

IFRS 16 Grant Thornton methodology

Our integrated approach

Grant Thornton can help you implement the new leasing standard with our team of dedicated advisory professionals focused on your industry.Our services include a variety of offerings, ranging from an initial impact assessment to help you focus implementation efforts, through full-scale implementation using our phased implementation methodology tailored for your needs.

 IFRS 16 integrated approach

Further information

IFRS 16 ‘Leases’ represents the first major overhaul of lease accounting in over 30 years. The Standard brings fundamental changes to lease accounting, replacing previous accounting that is no longer considered fit for purpose. For further information on IFRS 16 see our IFRS News Special Edition - Major reforms to global lease accounting.

We hope you found this information helpful in giving you an overview of IFRS 16. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or find your local member firm here.