In January 2016, the International Accounting Standards Board (IASB) issued a new standard, the IFRS 16, which relates to the reporting of Leases. The issuing of the standard represents a culmination of several years of cooperation between the IASB and the Financial Accounting Standards Board (FASB), which looks after the issuing of standards in the US.

The new standard IFRS 16 will replace the presently valid standard IAS 17 and related interpretations. The main changes in reporting of leases await the tenants. The standard IFRS 16 is based on the fact that every lease represents for a tenant the purchase of a right to use an asset, and if instalments are paid in the course of time, then also to ensure the financing of this asset. In keeping with this principle, the standard IFRS 16 no longer distinguishes in case of a tenant, if the lease is financial or an operating one, but introduces a unified reporting model. This model requires from a tenant the identification of an asset as well as liability related to a lease for all leases with duration longer than 12 months and depreciation of the rented assets separately from interests on the liability from the lease. On the side of the lessor, the standard takes over the requirements of the IAS 17 standard. The lessor thus continues to distinguish between financial and operating lease, using a different reporting model for each of them.

For the sake of completeness, we add that lease is the same as letting and the new rules will thus also apply to the letting of non-residential premises, which is a transaction that occurs for many companies.  An exception is a contract of indefinite duration, which both sides can terminate without any significant sanctions.

The standard IFRS 16 will come in operation as of January 1, 2019. Earlier application of the standard is possible on the condition that the company also applies the standard IFRS 15 Revenues from Contracts with Customers. For the IFRS standards to be used in the EU, though, their application needs to be approved by the European Commission. Not only the standard IFRS 16 and IFRS 15, but also the standard IFRS 9 Financial Tools are currently awaiting this approval.

We will inform you about further development regarding IFRS in the upcoming issues of the Newsletter.