Major new accounting standard – IFRS 16 Leases

A major new accounting standard called IFRS 16 Leases has been issued by the International Accounting Standards Board (IASB).

Previous accounting requirements covering the way in which companies account for leases have now been replaced. The older methods, introduced more than 30 years ago, were considered unfit for purpose.

Flexible financing

Many companies take advantage of various leasing arrangements, which can be effectively used as a source of flexible financing.

The replacement of the old lease accounting standard (IAS 17 Leases) is aimed at making a company’s lease assets and liabilities more transparent to investors, in particular for those involved in airline, shipping, and retail sectors.

21st century

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

Hoogervorst added that a greater degree of transparency will improve comparability between companies that use leasing arrangements against others that borrow and buy.

There have been multiple rounds of public consultation in the run-up to the introduction of the new standard, which will come into effect from 1st January 2019. However, early application will be accepted for companies that also apply IFRS 15 revenue from contracts with customers.

Big Four firm Deloitte said the final standard will mean leased assets that were held off the balance sheet will be brought on book, which has the potential to add billions to the worth of lease-intensive industries.