From 1 January 2019, in accordance with the new IFRS 16 standard, lessees will recognize almost all lease transactions on the balance sheets as a financial liability and as a right of use of an asset.
According to IAS 17, being currently in force, leased assets are recognized on an off-balance sheet as an operating lease or on the balance sheet as a finance lease.
The transition to IFRS 16 is a revolutionary change in the management of the company contracts. Adaptation to the provisions of the new standard requires the execution of an inventory and analysis of all leasing, lease and rental agreements in the company and recognition of them on the balance sheet in the form of a financial liability and the right to use the asset.
myLease Manager - a tool supporting calculations
in accordance with IFRS 16
The changes will influence on:
The balance sheet total will increase, the leverage ratio will deteriorate, and the efficiency ratios will decline, as both the nature of leasing fees and the pattern of their recognition will change.
These changes can have a very significant impact on business contracts with various stakeholders, such as banks and lenders, investors and analysts, and employees. Some companies will also verify their current approach to the method of obtaining fixed assets (purchase on credit vs. leasing).
Until January 1, 2019, companies must analyze their lease agreements as well as lease and other services that may meet the criteria of leasing under the terms of the new standard.
In the process of contract analysis, apart from the accounting department, specialists from other departments should also be involved, in which the business processes of IFRS 16 will trigger the greatest changes. This applies in particular to such departments as IT, supplies, taxes, cash management, legal and operational issues, real estate and human resources.
Under IFRS 16, companies are required to analyze much more data from leasing contracts - about 30 parameters from contracts are re-identified.
We support companies at every stage of implementing IFRS 16:
Learn more about myLease
Partner, PwC Ukraine
Tel: +380 44 354 0404
Director, PwC Ukraine
Tel: +380 50 445 0371