Solving the challenge of bringing operating leases onto the balance sheet
IFRS 16 Leases forces a fundamental change in lease accounting. From January 2019 organizations will need to capitalize operating leases greater than 12 months in duration and record them in the balance sheet as assets and obligations – rather than reporting operating leases off balance sheet and disclosing them as notes to the financial statements.
The new regulations will undoubtedly improve the transparency of leases for investors and make it easier for them to compare between companies that lease assets and those that choose to buy. However, the fact is that it will have a major impact for companies that have to comply with the new method of reporting.
The most significant effect of the new requirements will be an increase in lease assets and financial liabilities. Companies that have a lot of off balance sheet leases will have to change their key financial metrics derived from the company’s assets and liabilities (for example, debt/equity ratio). In addition, lessees will need to recognize the amortization of lease assets and interest on the lease liabilities of off balance sheet leases over the lease term.
The challenge for many companies is that the information needed is often dispersed throughout the organization in disconnected systems, making it difficult to obtain a comprehensive view of their lease portfolios.
To efficiently meet the requirements of IFRS 16 Leases, organizations need a way of bringing together all the data they need to gain complete visibility of their global lease portfolio and quickly identify the impact on financial statements.
Join experts from PwC, Nakisa and SAP at a webinar on Wednesday 25th May, 14.00 BST/15.00 CEST, to learn how you can start preparing now for the introduction of IFRS 16 Leases and get ahead of the game.