The IASB issued the new Leases Standard, IFRS 16, one year ago, with a three-year implementation period. One third into that period, the organisation has published implementation advice from four Board members, including the following top five tips:
1. Think transition
There are several options available for companies to choose between when making the transition from the old Leases Standard, IAS 17, to the new Standard, IFRS 16. Some of these may have significant cost savings. Considering all options as early as possible will allow companies to make the best choices for their lease portfolio.
2. Allow enough time
Some of the practical steps required for implementing the new Standard may be quite time consuming. For example, for companies with a large volume of leases, it may take some time to identify and locate all their lease contracts.
3. Work out discount rates
Companies will have to determine an appropriate discount rate for each lease to meet the IFRS 16 requirements. Companies could benefit significantly from an early consideration of their approach to determining discount rates.
4. Fine tune disclosures
As IFRS 16 requires much of the information that was previously disclosed in the notes to financial statements to appear on the balance sheet, investors may expect that lease liabilities on the balance sheet under IFRS 16 will reflect the discounted amount of lease commitments disclosed in the notes section under the previous Standard. Making sure that the disclosures are as complete as possible in the period between now and the application of the new Standard, will help avoid unnecessary complications.
5. Inform investors
Early communication with investors to ensure they are well aware of the changes coming to a company’s balance sheet is important to manage expectations.
IFRS 16 was issued on 13 January 2016 and is effective 1 January 2019. The full article can be found here: http://www.ifrs.org/Features/Pages/leases-one-year-on-putting-ifrs-16-into-practice.aspx.
Further information and tools to support the implementation of IFRS 16 is available here