AASB16 Leases: The New Standard
On 1 March 2018 we conducted a workshop with Carmen Ridley (Board member of AASB) on AASB16 Leases, the new Standard introduces a new model requiring lessees to recognise all leases on balance sheet, except for short-term leases and leases of low value assets.
These changes were issued by the Australian Accounting Standards Board in February 2016 and are effective for periods beginning on or after 1 January 2019 i.e. 31 December 2019 for December year ends and 30 June 2020 for June year ends.
AASB 16 will bring most leases on-balance sheet from 2019. All companies that lease assets for use in their business will see an increase in reported assets and liabilities.
To implement these changes entities will need a thorough understanding of the new requirements and their impact on an entity’s Balance Sheet, Income Statement and the Cash flow Statements.
At a basic level the workshop identified several implications that need to be considered, including:
There will be a significant administrative burden for entities in capturing all the information required to calculate the lease liability and required disclosures, even with the exemptions for short-term leases or small leased assets. Lease agreements have various complex and inter-related elements that will need to be analysed across the portfolio of leases. Although the new standard is not applicable until 2019, a detailed analysis of its impacts is recommended now to make informed decisions.
In our next newsletter, we will cover the circumstance where an entity has entered into a sub-lease arrangement.