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IFRS 16 Leases paper written by Dr Michael Grüne of member firm Prof. Dr. Binder, Dr. Dr. Hillebrecht u.Partner GmbH

A new paper outlining the coming accounting requirements of IFRS 16 Leases has been published by Dr Michael Grüne of MGI Worldwide member firm Prof. Dr. Binder, Dr. Dr. Hillebrecht u.Partner GmbH, based in Stuttgart, Germany.

Completing a long-running project to overhaul lease accounting, IFRS 16 Leases will come into effect from January 1st 2019 and will impact all entities that lease assets, either as a lessee or lessor. The shift includes a fundamental change to the accounting for lessees as off-balance-sheet treatment in general will no longer be acceptable.

IFRS 16 will supersede IAS 17 (Leases), IFRIC 4 (Determining whether an Arrangement contains a Lease), SIC-15 (Operating Lease-Incentives) and SIC-27 (Evaluation the Substance of Transactions Involving the Legal Form of a Lease).

Essential information for MGI Worldwide members

The most pertinent information relating to lessees is:

• All leases to be accounted for on 'balance sheet' (except short-term and low-value asset leases) ensuring a single accounting model.
• Front-loading to become typical for lease expenses.
• Accounting change will have an impact on financial ratios and key performance indicators.

The most pertinent information relating to lessors is:

• Only minor changes from current IAS 17 (Leases) standard.

Other changes to be aware of:

• New guidance on sale and leaseback accounting.
• New disclosure rules.
• New definition of a lease will result in some arrangements previously classified as leases ceasing to be so, and vice versa.

For full details of the new IFRS 16 Lease standards and insight into how to best prepare for this change, you can read Dr Michael Grüne's paper in full HERE.

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