Professional Documents
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IFRS 16 Leases
CFO Roundtable
5 April 2016
Darrel Scott
IASB member
When?
Why?
The need for change
1
1,022 IFRS/US GAAP listed entities (excluding banks and insurance companies) each with estimated
operating lease liabilities of >$300M (discounted basis). Data obtained from financial data aggregators
that may contain errors; this information should, therefore, be used with a degree of caution.
Ratio non-current
2.0:1 2.6:1 1.7:1 3.5:1
liabilities to equity
1
The figures included in the if all leases on balance sheet columns are estimates using various
assumptions about the discount rate and average lease term of leases held by each company.
What?
The changes
Short-term leases
Leases with lease term <12 months
Low-value asset leases
Leased assets in order of magnitude of <$5,000
Examples: laptops, office furniture, mobile phones
Leases of low-
value assets
Not required to be included in lease
liabilities
Short-term leases
Variable lease
payments linked
to sales or use
Excluded from lease liabilities
Optional
payments (not
reasonably certain)
Lease
Right of use liability
asset (present value
(at cost) of lease
payments)
Balance sheet
ROU assets together with PPE or as own line item
Lease liabilities in accordance with IAS 1
Income statement
Depreciation of all leased assets
Interest expense for all lease liabilities
Cash flow statement
Principal within financing activities
Interest within either operating or financing activities (IAS 7
option)
SubleasesIntermediate lessor
Account for head lease and sublease as two separate
contracts
Classify a sublease with reference to the ROU asset arising
from the head lease
Should not offset lease assets and liabilities, or income and
expenses, unless meets existing IFRS guidance for offsetting
Sale and leaseback transactions
Sale must meet the requirements in IFRS 15
Seller/lessee recognises only gain related to rights transferred
Adjustment made for off market terms
Leases on Measure-
Converged Definition
balance ment of
decisions of a lease
sheet liability
Lease in
Different income
statement
Benefits?
A lack of information
Investors attempt to estimate Improved quality of
Companies provide lease- financial reporting
adjusted information
A lack of comparability
Improved comparability
No level playing field
1
2014 annual reports for the vast majority of companies.
2
Estimate using the average cost of debt for these companies, that was 5%.
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Key benefits of IFRS 16 34
Leases website
http://www.ifrs.org/Current-Projects/IASB-Projects/Leases
Effects analysis
http://go.ifrs.org/Leases/effects-analysis
Project summary and feedback statement
http://go.ifrs.org/Leases/project-summary
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