IFRS 16 Resources
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What is IFRS 16?
The International Financial Reporting Standard (IFRS) 16 Leases is a set of global accounting standards issued by the International Accounting Standards Board (IASB) that outlines how companies should account for leases in their financial statements.
It provides a single, comprehensive accounting model for lease accounting that applies to all types of leases, whether they are operating or finance leases.
IFRS 16 requires lessees to recognise most operating leases on their balance sheet as a right-of-use asset and a corresponding lease liability.
Need more information on IFRS 16 and its role in lease accounting?
IFRS 16 at a glance
Where it came from:
IFRS 16 was introduced by IASB on January 13, 2016, and became effective on January 1, 2019, replacing the previously used standard IAS 17.
What it does:
The IFRS 16 framework sets out the principles for recognition, measurement, presentation and disclosure of leases.
Who it applies to:
IFRS 16 affects companies that lease assets as part of their business operations, applying to both lessees and lessors.
What are the main goals of IFRS 16?
- To improve financial consistency, transparency and comparability between companies,
- To eliminate off-balance sheet accounting practices making companies report on their lease agreements which were previously hidden in the footnotes of financial statements,
- To provide investors and other stakeholders with a more accurate and complete picture of a company’s lease obligations, which can have a significant impact on a company’s financial position and performance.
Who does IFRS 16 affect?
IFRS 16 applies to all companies that prepare their financial statements in accordance with International Financial Reporting Standards (IFRS). This includes companies that are publicly listed, privately held, or not-for-profit organizations.
Most importantly, IFRS 16 affects companies that lease assets, including real estate, vehicles and equipment, as part of their business operations. This includes companies in various industries, such as retail, manufacturing, finance, aviation, infrastructure and telecommunications, among others.
The standard applies to both lessees and lessors; however, lessees are more significantly impacted due to the changes in accounting treatment for leases.
In our blog post, you can find more examples of IFRS 16 leases:
IFRS 16 for Property Leases
In terms of property leases, IFRS 16 applies to all types of property leases, including office space, retail space, and other types of commercial property. The standard requires lessees to recognize lease liabilities for the full term of the lease, including any extension or renewal periods. This change aims to provide more transparency in financial reporting by reflecting a company's financial commitments related to leases.
We have written a comprehensive article for property managers and their teams to help them better understand the implications of lease portfolio management under IFRS 16.
IFRS 16 Tax Impact
Implementation of FRS 16 Lease has significant tax implications for both lessees and lessors. For lessees, the standard eliminates the distinction between operating & finance leases, resulting in the recognition of lease liabilities and assets on the balance sheet. For lessors, the standard may require changes to lease structuring to ensure that lease payments are deductible for tax purposes.
It is also important to note that tax laws and regulations can vary between countries, and the specific impact may depend on the jurisdiction in which an organisation operates.
IFRS 16 Implementation
Implementing IFRS 16 can be a complex process, but with the right approach, it can be done effectively. These steps can help you implement IFRS 16 in an efficient manner:
Educate yourself: Make sure you understand the new standard and its implications for your organisation. Familiarise yourself with the lease accounting changes and their impact on your financial statements.
Create a project plan: Develop a detailed project plan that identifies key milestones and timelines. This plan should include all stakeholders involved in the implementation process, such as finance, IT, and legal departments.
Assess your lease portfolio: Identify the lease agreements that will be impacted by the new standard and determine the right implementation approach for each lease.
Choose the right software: Consider investing in a functional, reliable and secure software solution to help you manage your leases and comply with the new standard. This will help you automate lease accounting processes and reduce the chance of errors. .
Train your staff: Provide training to your staff on the new standard to ensure they understand the changes and their impact on your organization.
Get expert help: Consider seeking the guidance of IFRS 16 implementation expert.
Monitor your progress: Regularly review your progress against the project plan and adjust as needed.
IFRS 16 Reporting
IFRS 16 reporting requirements are the accounting rules that organisations must follow when reporting leases in their financial statements.
In terms of reporting under IFRS 16, lessees are required to provide more extensive disclosures in their financial statements than under IAS 17.
The disclosures should include information about the nature and extent of the company's leasing activities, the impact of leases on the financial statements, and lease-related expenses.
Download our FREE resource on getting value out of IFRS 16 reporting:
It all feels like understanding and complying with IFRS 16 is too challenging, but it does not have to be! With the help of our easy-to-use software solution, lease accounting and lease management become effortless.
Benefits of using IFRS 16 software
Streamlining lease management processes can offer several benefits to organisations that lease assets, bringing efficiency, cost savings, better visibility, and improved compliance. Here are some key advantages of using IFRS software:
- Increased accuracy: IFRS 16 software helps reduce errors in data entry and calculation, providing more accurate lease accounting information. Read about the common lease accounting mistakes you should avoid
- Easy compliance: The software makes achieving compliance with supported accounting standards easier.
- Improved visibility: The software provides insights into a company's lease portfolio, including upcoming expiries and renewals, so that organizations can make informed decisions about leasing.
- Increased productivity: The software automates lease data collection, reporting, and lease accounting calculations, removing the need for manual data entry and saving time. Discover why you should get rid of your IFRS 16 lease calculation spreadsheets.
- Better decision-making: By providing accurate and timely lease information, IFRS 16 software enables informed financial decision-making.
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