Lease Accounting Changes
The Internal Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) released new global lease accounting standards in Q1 2016. These two Boards, respectively, govern the International Financial Reporting Standards (IFRS) and the United States Generally Accepted Accounting Principles (US GAAP). The changes in the lease accounting standards have huge implications for all companies with leases and those that file financial statements as leases will become a key feature on company balance sheets.
The Change
OLD BALANCE
SHEET
NEW BALANCE
SHEET
Increase Transparency
All leases will now be on
the balance sheet.
The Impact
Did you know...?
Profit & loss analysis will be
significantly different from
today
Key financial metrics such as
EBITDA, ROA and Debt-Equity
ratio reported by companies will
be impacted
Significant administrative
and reporting requirements
1 in 2 companies using IFRS
or US GAAP will be affected
by the lease accounting
changes
of lease commitments
currently do not appear on
the company’s balance
sheet
There are US$2.18 trillion
lease commitments of listed
companies around the world
The Journey
Exposure draft
Final standards released in Q1 2016
Effective date
of new standard:
Jan 2019
Two year
look-back period
Revised
Exposure Draft
2010
2013
2016
2017
2019
Accounting for leases
Determine if contract
is a lease
Determine the lease
accounting model
Determine lease term
to be included
Calculate capitalized
lease obligations
Disclose required
information in
financial statements
Hot Topics
SUB LEASES
SALE & LEASEBACK
LEASE VS OWN
  • Generally, intermediate lessor will need to account for head lease and sublease separately under the respective accounting models

  • US GAAP – determine classification of sub lease with reference to underlying asset

  • IFRS – determine classification of sub lease with reference to Right of use (ROU) asset arising from head lease
  • Closely aligned to the new Revenue Recognition standards issued in 2015

  • Must determine if there is a sale based on whether buyer obtains control of the asset

  • Measurements will be at fair market value even if the “deal” is not
    • Fundamentals of business justification for such decisions should not change

    • Cash flow impacts do not change

    • Lease vs. own analysis should only be run if own options are truly viable
      JLL Does Not Provide Accounting Advice - JLL is not an accounting firm and does not provide accounting advice. You should seek the advice
      of your own accountant when considering tax issues, interpretation of accounting standards or other matters with accounting ramifications,
      including the information discussed in this infographics.
      Plan
      Implement
      Maintain
      Strategy
      Operations
      Collect data D1 impact | Review / Modify technology
      | Assess impact | Design reporting
      Define roles | Develop processes
      | Modify BU metrics | Align resources
      Technology / Data
      Modify lease terms
      | Financing arrangements
      2019+
      2017
      Now
      Getting Ready