Almost all companies use assets through operating or finance leases. Almost all companies are therefore affected by the IFRS 16/TFRS 16 “Leases” standard.
For lessees, IFRS 16/TFRS 16 requires the recognition of a “lease liability” and a “right-of-use asset” for all leases at the commencement of the contract, based on future lease payments.
For lessees, IFRS 16/TFRS 16 requires the recognition of a “lease liability” and a “right-of-use asset” for all leases at the commencement of the contract, based on future lease payments.
Leases enlarge your balance sheet and adversely affect leverage and capital ratios. The standard affects frequently used financial and performance indicators such as the leverage ratio, current ratio, asset turnover, interest cover, EBIT, EBITDA, net income, earnings per share, return on capital employed (ROCE), return on equity (ROE) and operating cash flows, and these effects should be assessed.
The effects of the standard are not limited to the financial statements. Its impact on management reporting and budgeting should not be overlooked either. Reflecting the effect of leases on all types of reporting regularly and accurately also creates a need for systems and processes, particularly in companies whose business model is built on leasing and which have numerous and complex contracts.
Although the theoretical application of the standard appears easy, its practical application is complex because it requires many assumptions and estimates. Matters specific to your company and the sector in which it operates, a large number of leased assets and leases entered into in areas of strategic importance to your company can make applying the standard difficult. We can help you with the following.
- Our Accounting and Reporting Services
- Our System and Process Implementation Services
We can help you analyse your complex lease contracts, compile contract master data, assess your accounting policies, complete the calculations manually for the reporting periods required and prepare an IFRS 16/TFRS 16 application guide specific to your company.