Leasing is an important financial solution used by many organisations. It enables companies to use property, plant, and equipment without needing to incur large initial cash outflows. Under existing rules, lessees generally account for lease transactions either as off-balance sheet operating or as on balance sheet finance leases. The new standard requires lessees to recognise nearly all 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. The lessor’s accounting model largely remains unchanged.

The new IFRS 16 requirements eliminate nearly all off-balance-sheet accounting for lessees, and impact many commonly used financial metrics such as gearing ratios and earnings before interest, tax, depreciation, and amortization (EBITDA). The changes are designed to make it easier for outsiders to compare the performance of different companies, but they may also affect credit ratings, borrowing costs, and even stakeholders’ perception of a company.

Effective Start Date
Starting January 1, 2019, the Financial Accounting Standards Board (FASB) and the International Accounting Standard Board (IASB) will implement new standards, ASC 842 and IFRS 16, respectively, that will impact your company’s balance sheet and how your business will likely operate in the future.

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