IFRS 16 - In depth

The new accounting standard for leases (IFRS 16 - "Leases)" becomes applicable for reporting periods beginning on or after 1 January 2019. The attached IFRS 16 In-depth publication includes detail discussions of the new lease accounting requirements for lessees' and lessors. While lessors are not much impacted by the new requirements, the accounting for leases in the lessees' financial statements will be significantly affected by the requirement to recognise all leases on the balance sheet of lessees' (unless the leases are short term or low value). In addition to the impact on the income statement and balance sheet, this new requirement will also affect certain KPIs and ratios (such as gearing and leverage ratios) and compliance with loan covenants which may include these KPIs.

Almost all PNG businesses have some kind of lease arrangements including property leases. The property leases are currently treated as operating leases in the books of the lessees'. IFRS 16 requires such leases to be recognised on the balance sheet similar to finance leases. This will have significant impact on the financial statements of these businesses.

This publication, however does not deal with accounting for land leases in PNG including those under state leases. Further guidance will be available in future in relation to such lease arrangements.

Please feel free to contact your engagement partner or any of the assurance partners or directors in PwC PNG if you need any assistance or clarifications.