The new leases standard

What will change and how can LeasePlan support you?

The International Accounting Standard Board has published the new standard on lease accounting (IFRS 16). It replaces IAS 17, which is almost 20 years old, as of January 1, 2019.

According to IFRS 16, lessees must now recognize most leases in the balance sheet in the form of a lease liability and on the asset side in the form of a right to use the leased asset at the present value of the lease payments. The right to use the leased asset is depreciated on a straight-line basis over the term of the lease. The lease liability must be reduced by the monthly or annual present value of the lease payments, whereby the proportionate monthly/annual interest expense to be booked decreases further and further until full repayment is made and the monthly/annual repayment amount increases.

In the past, when a company decided to lease cars instead of buying them, the paymentobligation wasn’t generally reported in the balance sheet as a liability. Underthe current IAS 17 standard, the company can decide at its discretion whetherto recognise the transaction as a finance lease or an operating lease dependingon the distribution of opportunities and risks between the two parties to thetransaction. A finance lease, which is more like a purchase financed by a loan,has to be reported as both an asset and as a liability. An operating lease, onthe other hand, which is closer to a rental arrangement, is considered to be apending transaction and doesn’t have to be reported in the balance sheet, onlymentioned in the notes.

The LeasePlan Group has prepared a reporting to provide its customers with all the data needed to calculate the cash value of the lease and the lease liability.You can request access to our e-Tool FleetReporting through your local LeasePlan account manager, which specifically gives you access to the IFRS16report. This is particularly suitable for contact persons from your accounting department or controlling.

Update: The International Accounting Standards Board (IASB) amended the IFRS 16 standard on 28 May 2020 to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. The exemption does not apply to lessors.

Concessions offered by lessors such as deferred payments generally constitute a lease modification with the accounting consequence of a revaluation of the lease. The IASB’s amendment now offers lessees an exemption from assessing whether a COVID-19-related rent concession is a lease modification if all other IFRS requirements are met. If the lessee chooses to apply the exemption, the concession is not accounted for in the balance sheet as a lease modification.

We will beproviding further information to our customers well in advance of the entryinto effect of IFRS 16 on 1 January 2019. The information provided on thiswebsite will also be updated as necessary and your LeasePlan account managerwill be contacting you in due time in connection with this matter.