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New Leasing Standard
Dec 10, 2015

New Leasing Standard

The International Accounting Standards Board (IASB) is about to issue the long awaited IFRS on leasing. The new standard will introduce a single lessee model for lessee accounting, but will contain little change to existing lessor accounting. The new standard will require:

All leases to be presented on the balance sheet;

Interest and depreciation presented separately in the income statement; and

Cash paid split into principal (financing activities) and interest (operating or financing activities) in the cash flow statement.

The new definition of a lease will be similar to the existing definition, but the guidance on “control” will change and will be based on the ability to direct the use and obtain the benefits from use.

The standard will also contain optional recognition exemptions. These apply to:

  • Short-term leases, which are leases with a term of less than twelve months; and 
  • Low-value asset leases, which are leased assets with a value of less than US $5,000 such as personal computers, office furniture and mobile phones.

According to the new standard, lease assets and liabilities will be measured on a present value basis.  Lease payments will:

  • Be those payable during a non-cancellable period plus optional periods that the lessee is reasonably certain to exercise;   
  • Include fixed payments and inflation-linked payments; and  
  • Exclude variable payments linked to future sales or use. 

The discount rate will be the rate in the contract, or the lessee’s incremental borrowing rate.

The standard will contain detailed transitional requirements and full retrospective accounting is not mandatory. A modified retrospective approach will be permitted for the transition, enabling existing finance lease accounting to be carried forward and simplifying the transition for operating leases, including no restatement of comparatives. The effective date of the standard is for periods commencing on or after 1 January 2019. Early adoption will be permitted.

An almost identical US standard is also about to be issued.