Complying with IFRS 16 is made easy with Nomos One
Our lease accounting module has been designed by chartered accountants who live and breathe IFRS 16 and it’s been tested against over 100 scenarios provided by global accounting firms. Auditors recommend their clients to Nomos One because they know we have you completely covered. From transition to ongoing reporting, you can rest easy knowing your portfolio is IFRS 16 compliant. View our Lease Accounting module to see how Nomos One can help with your transition, portfolio maintenance and ongoing reporting.
IFRS 16 overview
The new IFRS 16 – Leases accounting standard takes effect for accounting periods beginning on or after 1 January 2019.
IFRS 16 requires more extensive disclosures about leasing activities than IAS 17, making reporting more complex and onerous. Essentially, it requires lessees to account for leases on their balance sheet by recognising right-of-use assets and lease liability.
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What’s different under IFRS 16?
Here’s a high-level summary:
- Leases will no longer be classified as operating or finance
- With the exception of low-level and short-term leases all right-of-use assets and lease liabilities will be recognised on the balance sheet
- Depreciation on right-of-use assets and interest on lease liabilities will be included on the income statement over the lease term
- On the cash flow statement, the total amount of cash paid will be separated into principal and interest
- Financial metrics are likely to change so you’ll need to check if you still comply with your debt covenants.
Who does IFRS 16 affect?
IFRS 16 applies to all for-profit entities complying with any form of IFRS, being full IFRS and/or IFRS Reduced Disclosure Regime (‘RDR’).
There are minimal changes for lessors, however disclosure within financial statements may increase.
IFRS 16 primarily impacts lessees with a large number of leases that were previously capitalised as ‘operating’.
What impact will IFRS 16 have on my organisation?
The new requirements will directly impact the financial performance and value of your company so it’s essential you get it right.
We expect lessees to see an increase in recognised assets and liabilities, more leases recognised in earlier periods of a lease and less in later periods, a shift in lease expense classification and amortisation, and an increase in net debt/EBITA ratios.
To apply IFRS 16 successfully, you’ll need to make a range of judgments and estimations. Just some of the things you’ll need to take decisions on are which transition approach to take, whether to apply any of the expedients, whether to apply exemptions, use of hindsight, whether to separate out non-lease components, which discount rate to apply and assumptions on renewals.
Other challenges include new measurement criteria, practical expedients, frequent re-measurements, forecasting payments for the lifetime of your properties and assets, new depreciation schedules and accounting for renewals, changes in rent and discount rates.
Given the complexity involved, we recommend you invest in a lease management and lease accounting platform that is IFRS 16 compliant so you don’t overlook anything.