On 11th November 2015 the two joint standard setting bodies – the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) – have now at last finalized all their decisions on the new lease accounting standard. It should be published shortly, in different versions for international financial reporting standards (IFRS) and for US GAAP.
The far reaching changes in lessee accounting will include the capitalization of nearly all of the presently off-balance-sheet operating leases.
Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after 15th December 2018. For calendar year-end public companies, this means an adoption date of 1st January 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017.
Non public companies will be required to apply the new leasing standard for fiscal years beginning after 15th December 2019, and interim periods within fiscal years beginning after 15th December 2020. For non public calendar year-end companies, this means an adoption date of 1st January 2020 and retrospective application to previously issued annual financial statements for 2019 and 2018.
This means that most private companies and local authorities, who account for the great majority of lessees, will have significantly longer periods to adapt. The IFRS SMEs standard will continue to incorporate the current IAS 17 lease accounting standard, with operating leases remaining off-balance-sheet, for some years after 2019.
Both Boards have decided to permit voluntary early adoption of the new standard once it is released. However, in the IASB's case this has been made subject to the new leasing rules not being applied before the provisions of the new IFRS 15 revenue recognition standard, which will have some interface with the new leasing standard particularly in respect of the sale and leaseback rules.
Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. Whilst the likely impact for local authorities may be easier classification of leases with more vehicles, IT, plant and equipment assets on balance sheet, however there will be implications for CFR, MRP and borrowing limits. Furthermore, identifying which arrangements contain a lease will require careful judgment and may not always be a straightforward.
Arlingclose clients who have questions about this Insights article should contact either the Leasing and Technical teams at firstname.lastname@example.org
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