A refresher on AASB 16 Lease Accounting: Make sure you’re prepared!

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21
May

A refresher on AASB 16 Lease Accounting: Make sure you’re prepared!

21.05.19

Last year the Australian Accounting Standards Board continued its rollout of new accounting standards with the announcement of the new standard, AASB 16, superseding AASB 17. AASB 16 aims to provide greater transparency of a business’s leasing activities and financial position to owners, shareholders and investors by improving the accuracy and clarity of a business’s financial reports.

Having come into effect as of 1 January this year, this new standard brings some significant changes to lease accounting. AASB 16 introduces a new model that requires lessees to recognise all leases on the balance sheet, except for short-term leases and leases of low value assets. This means that for many businesses and charities following a 30 June financial year, there could be an additional administrative burden as they will now need to ensure they have captured all the additional information for calculating lease liability.

What are some of the potential implications of AASB 16?

  • Impact on gearing and loan covenants. Reported debt will increase due to lease liability recognised and a right of use asset will also be recorded in balance sheet.
  • EBITDA and EBIT will increase because there will be no operating lease expense included. Part of the lease cost will become interest expense and depreciation expense will also increase as depreciation will be recorded for right of use of assets.
  • Impact on remuneration schemes, including bonuses and share-based payment arrangements with operating performance criteria.
  • Existence of data, information systems and technical knowledge to calculate the impact and satisfy ongoing reporting requirements.

Where can I find out more?

To read more about the AASB16 please see our articles outlining both the New Standard for AASB16 here as well as discussing in depth its implications on Subleasing Arrangements here. Finally, should you have any questions about how these changes could affect you please contact us or speak to your ESV engagement partner on 02 9283 1666. Your dedicated team will offer a practical approach to implement AASB 16.

 

Article by Tim Valtwies