• AASB 16

    Leases

AASB 16 Leases

Background

AASB 16 Leases fundamentally changes the financial reporting landscape for how lessees account for operating leases. The new standard effectively removes the operating leases classification and requires all lessees to show a lease liability and a corresponding right-of-use asset for all leases (with some limited exceptions).

Entities need to ascertain what actions need to be taken so as to allow them to prepare their financial statements using this new accounting standard. The changes can be complex and have effects beyond just the accounting treatment.

As the choices made will affect the way the performance of the business is measured and reported, it is vital to consider not only the commercial and practical issues, but also the tax implications of these changes.

Our experts in this area can help you establish the impact of these issues and advise on what actions you should be taking.

Impacts of AASB 16 Adoption

The effect of adopting the new leases standard raises many questions such as:

  • How will reported earnings be impacted?
  • How will the balance sheet be impacted?
  • Which processes and systems will need changing ?
  • Which wider business planning activities will be affected?
  • What staff training will be required?
  • How will current agreements be affected?

Steps to Implementation

Implementation Process

Steps to implementation - IFRS 16

Adoption of IFRS 16 will involve judgement and the making of various choices as to how to apply the standard, including deciding which transition route to employ – entities need to consider the commercial and practical implications of a change to reported earnings, EBITDA and the presentation of their balance sheets.

AASB 16 – Industry Heat Map

As a guide the heat map below considers the relative level of impact and complexity when adopting AASB 16.

Red Red denotes a high level of potential impact and complexity.
Amber Amber denotes a medium level of potential impact and complexity.
Green Dark teal denotes a low level of potential impact and complexity.

Industry

Scope

Property Leases

Leases of transport / logistics

Leases of heavy items of equipment

Leases of infrastructure

Leases of equipment

Retail

Red Red Red Green Green Red

FMCG

Red Red Red Green Green Red

Software

Red Red Green Green Red Red

Telcos

Red Red Green Green Red Red

Building and construction

Amber Red Amber Red Green Red

Residential real estate construction

Amber Red Green Red Green Red

Manufacturing

Amber Red Red Red Amber Red

Mining

Red Red Red Red Red Red

Professional Services

Amber Red Green Green Green Red

Please see the AASB 16 Fact Sheet for further information including:

  • Commercial and practical considerations
  • A checklist of complex issues
  • The tax impacts; and
  • Consideration of the adoption methodology.