The new Leases standard will affect almost all organisations as practically all organisations are involved in leasing arrangements. Applying the new standard is expected to result in a gross up of the balance sheet, and possibly change the timing of when rent and other lease related expenses must be accounted for and where in the profit and loss statement they must be presented. The new standard will affect almost all performance indicators used in practice, such as the gearing ratio, liquidity ratio, interest coverage ratio, EBITDA, operating profit/loss, net profit/loss, EPS, ROCE, ROE and the operating cash flow.
The impacts of the new standard are also expected to have an impact on an organisations strategy and decisions concerning the acquisition of assets (because a company’s decision to lease rather than buy an asset must be assessed according to new criteria). It is important to note that the accounting and financial impacts are just the tip of the iceberg – the new standard is expected to have a comprehensive effect on companies’ processes, and therefore impacts on an organisation’s IT, procurement, tax, treasury, legal, HR and operations functions in addition to the accounting impacts.