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IFRS16:NEW LEASE ACCOUNTING STANDARD MAY IMPACT YOUR COMPANY

IFRS16:NEW LEASE ACCOUNTING STANDARD MAY IMPACT YOUR COMPANY

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Friday, November 10, 2017

On 13 January 2016, the International Accounting Standards Board (IASB) published IFRS 16 leases, completing its project to overhaul lease accounting. IFRS 16 will have a substantial impact on the financial statements of lessees around the globe. The new Standard, which is effective for accounting periods beginning on or after 1 January 2019, requires lessees to account for leases ‘on –balance sheet’ by recognizing a ‘right-of-use’ asset and a ‘lease liability’.

 

To whom does the new standard apply?

The new standard applies to all firms that use IFRS for reporting purposes (commonly all over the world listed companies & subsidiaries and financial institutions) or in some countries for local accounting needs.

 

Entities that report today under USGAAP should apply the Accounting Standard Update on lease. ASU 2016-02 issued in February 2016 which also brings most leases on the balance sheet but with slight differences with IFRS 16 in respect of cost recognition

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Any impact the new standard may bring to your company?

For lessees : the booking of a « Right of Use » and a liability on the basis of contracts information provided by the lessors.

 

However, the operational benefits of OL remain:

Effective and easy source of financing,

Improved cash flow,

Predictable monthly payments,

Outsourcing of non core processes (fleet management, maintenance, assistance, accident management, fuel,…)

Removal of asset and disposal risks,

Flexibility of use.

 

When does the new standard apply?

It is to be expected that balance sheets will need to be prepared under the new standard in 2019 for those companies reporting under IFRS.

Earlier application (01.01.2018) is permitted for entities that apply IFRS 15 “Revenue from contracts with customers”.

 

Next steps: what support will Arval provide?

Arval is fully committed to delivery the most straightforward reporting solution to its customers at the beginning of 2018.

 

Arval will continue to update your on the introdcution of the new standard and the progress we are making in the creation of all the appropriate reports. However if you have any questions or would like an up-to-date version of this docutment, please contact your account manager.

 

Arval also recomments that lessees agree the methods they propose to use to recognize the lease liability and the right of use with their auditors at the earliest opportunity.

 

For more details, please download: 

IFRS16 INTRODUCTION DECK

WHITE PAPER: IFRS16, IMPACT ON YOUR COMPANY