Last week, the much-anticipated lease accounting standard was released by the International Accounting Standard Board (IASB), and while it wasn’t released in conjunction with the Financial Accounting Standards Board (FASB; to be released later this year), the two agencies did work in close collaboration with each other throughout the process.
The new standard, named IFRS 16 Leases, requires that leases be reported on balance sheets as assets and liabilities. Additionally, it now defines a lease as being, “present only when an arrangement conveys the right to ‘control’ the use of an ‘identified asset’ for a period of time in exchange for consideration.”
Here are some of the financial reporting benefits under the new standard:
- The asset amount on the balance sheet will appear less than the cost.
- The on-book obligation will be lower than the debt or cash due to the residual investment.
- The lease will have little impact to debt ratios and financial measures.
IFRS 16 Leases becomes effective on January 1, 2019 (early application is permitted for companies that also apply IFRS 15 Revenue from Contracts with Customers).
As always, the ELFA has set up a great resource for all things related to the new lease accounting standards that you can find by clicking here. And stay tuned for more information once the FASB lease accounting standard gets released!