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Accounting for leases

For those entities preparing general purpose financial reports, please be aware of the impact of AASB 16 (IFRS 16) – Leases. 

The new leases standard requires companies that lease equipment to account for virtually all leases on-balance sheet. Property and equipment leases previously recognised as operating leases (effectively off balance sheet) will be accounted for as a right-of-use (ROU) asset and lease liability which will bring more transparency about a company’s lease commitments.

Exemptions still exist for short term (less than 12 months) and low value (< $ 5,000) leases. This may significantly impact a licensee’s financial metrics including current ratio and net tangible assets (NTA). Lessor accounting will be largely unchanged from the current leases standard, AASB 117 (IAS 17).

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