The International Accounting Standards Board (‘IASB’) announced a new leasing standard that will come into effect on 1 January 2019 (earlier application permitted for accounting periods ending on or after 1 January 2017).
This new standard requires lessees to recognise nearly all leases– with an exemption for short-term and low-value asset leases – on the balance sheet, which will reflect their right to use an asset for a period of time and the associated liability to pay rentals, whereas under the existing rules, lessees generally account for lease transactions either off balance sheet or on balance sheet for finance leases. The lessor’s accounting model largely remains unchanged.
The change in recognition pattern of leases impacts almost all commonly used financial metrics (gearing ratio, current ratio, asset turnover, interest cover, EBIT, operating profit, net income etc.) that may affect some stakeholders’ perception of the company and impact future transactions/arrangements.
In order to be prepared for the implementation of this new standard on 1 January 2019, all affected companies should start-up a phased and measured approach now.
PwC can help you understand how the standard is likely to affect you, what you need to do, and who you need to involve to implement the new standard. Please do not hesitate to contact us if you have further questions on this topic.
