The new accounting rules encompass new rules on lease definition. Effectively a lease is now tighly defined and in some cases there is an opportunity/threat for areas that once were not leases to now be a lease and hence on balance sheet. Likewise items that were operating or finance leases could now not be a lease at all.
Criteria are as follows:
- Identified asset
- Lessee obtains economic benefit
- Lessee directs use
The below graphic shows the changes between the old and new standard and how the accounts are affected.
With these criteria there is the opportunity for current leases not to be leases.The most obvious being service contracts – as assets may not be identified to specific lessee or the lessee can’t direct use.
With that in mind we created a factsheet to guide you through the changes under the new accounting standards:
If in doubt do not hesitate to contact us to learn more about what are the new accounting standards under the IFRS16 and how can our lease management system help your business through this transition.