How IFRS 16 will affect your reporting
Does your company report in line with International Financial Reporting Standards, or IFRS for short? Then from 2019 at the latest, that means you will have to recognise all leases, tenancy agreements and subleases in your balance sheet.
When IFRS 16 takes effect on 1 January 2019, all leases will be ‘on-balance sheet’ for companies that report under IFRS 16. This change will have an impact on the financial statements: as the equity ratio declines, total assets and liabilities increase.
Not all the changes are negative, however: operating earnings will no longer include all lease expenses, but only the amortisation on the right of use. Interest expenses will only be shown in the financial result. So IFRS 16 boosts operating earnings – an advantage for companies whose performance is measured by this metric.
Many companies now need to seek advice and take action.
As your leasing partner, we provide you with all-round advice by identifying and assessing your existing leases and supplying the relevant data. In addition, we explain exceptions and structuring options related to IFRS 16. Deutsche Leasing Group offers many solutions optimised for IFRS 16, from the leasing of minor assets worth ≤$5,000 through to factoring.
We support you with IFRS accounting.
Dr Harald Helmschrott, project manager IFRS 16 solutions, will gladly advise our German customers on
identifying and assessing existing leases and rental agreements.
supplying accounting data (also historical data if needed), in line with the standards of the German industry association (BDL).
clarifying the need for action before the effective date.
analysing and optimising your products in terms of IFRS 16 for your customers.
structuring options, for example by means of factoring via our subsidiary Deutsche Factoring Bank GmbH (DFB) and asset-based services from Deutsche Services und Solutions GmbH (DSS).
exceptions and structuring options under IFRS 16 for future leases in view of your financial and other objectives.
Three things you should know when reporting according to IFRS:
Leases, tenancy agreements and subleases to be recognised in the balance sheet
In future, IFRS 16 treats leases as the purchase of a right to control the use of assets.
Accounting for leases and rent agreements is therefore being brought closer into line with accounting for financing arrangements. This will result in significant changes in the accounting treatment of leases. As a lesee this poses considerable challenges for you in terms of financing and strategic financial reporting. On the other hand, it opens up new options for you in terms of reporting policies.
Almost all contracts are affected
The new rules apply with few exceptions to all leases and tenancy agreements, including subleases. Exceptions include short-term leases with a lease term of 12 months or less and low-value assets of up to around $5,000, such as laptops, office furniture, transport containers and filing cabinets.
Changes take effect as of 1 January 2019
IFRS 16 must be applied for reporting periods beginning on or after 1 January 2019. Optimal preparation should not only focus on existing leases, processes and reporting, but also include the analysis of new leasing products and services optimised for IFRS 16.