New standard on leases now effective


January 14, 2019

International Accounting Standards Board (IASB)

IFRS 16, Leases, which was issued in January 2016 and replaces IAS 17, Leases and related interpretations, has come into effect for annual reporting periods starting on or after 1 January 2019.

IFRS 16 changes the accounting substantially for lessees. The new standard eliminates a lessee’s classification of leases as either operating leases or finance leases. Instead, almost all leases are ‘capitalised’ by recognising a lease liability and right-of-use asset on the balance sheet. There is little change for lessors.

The visibility of companies’ lease commitments will be increased by IFRS 16, which will better reflect economic reality. The standard will also make it easier for users of financial statements to compare companies that lease their assets with companies that borrow money to buy their assets, creating a more level playing field.