MFRS 16: Leases

What you need to know

The Leases standard is changing effective for annual periods beginning on or after 1 January 2019. Are you ready? 

Leasing is an important financial solution used by many organisations. It enables companies to finance property, plant and equipment without the need to incur large initial cash outflows.

Under existing rules, lessees 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.

Why is it an issue?

  • Effects of the new standard will be felt across all industries, and it has a cross-functional impact to your entire organisation
  • The new standard will gross-up your balance sheet and impact your profit and loss, and requires extensively more disclosures
  • It redefines commonly used financial ratios such as gearing ratio and EBITDA, and impacts performance metrics too
  • It may also affect lessors’ business models and offerings too

The accounting change for leases is just the tip of the iceberg. Changes to the lease accounting standard have a far-reaching impact on lessees’ business processes, systems and controls.

Companies will need to take a cross-functional approach to implementation, not just accounting. The new standard will have an impact on your financial ratios and it may impact your financial covenants, credit ratings, borrowing costs and your stakeholders’ perception of you.

what will change in mfrs 16
how pwc can help you implement mfrs 16

At PwC, we can help you implement the new standard in three steps:

Step 1: Get organised

Project setup, governance and resources

  • Project management and planning advice
  • Gap and scoping analysis
  • Training
  • Industry benchmarking
  • Quality assurance function

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Step 2: Understand the impact

Scoping, model impact and assess business implications

  • Financial impact assessment 
  • Financial modelling
    • Evaluation of options for transition
    • Impact of judgements and estimates
    • Operational impact
    • Vendor selection support
  • Assess business and tax implications

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Step 3: Transition to the new standard

Implementation - gather and validate data

  • Pre and post implementation review
    • Review of contracts and data validation
    • Control testing of new systems
    • Review of disclosures
  • Dry run of pro forma financial results and comparatives

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Herbert Chua

Assurance, Principal

Tel: +60 (3) 2173 0649

Foo Wee Liam

Assurance Executive Director

Tel: +60 (3) 2173 0620

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