On January 13th, 2016, the IASB published a new accounting standard for lease contracts. This standard is referred to as IFRS 16. As per January 1, 2019, IFRS 16 will become effective for all listed EU-firms and will replace IAS 17.
The transition from IAS 17 to IFRS 16 has some significant consequences for the financial reporting of corporates. A significant change in IFRS 16 compared to IAS 17 is that the new standard requires that lessees recognize leases on their balance sheets, regardless of the industry in which the entity operates. This is an important shift in approach from the present standard and it will affect many corporates.
Currently, listed companies around the world have around EUR 3000 bn in operational leases, of which 85% is held off-balance. The fact that most of these operational leases are to be recognized on balance sheets will increase debt ratios significantly and solvency ratios are likely to deteriorate.
However, IFRS 16 does not only mean doom-and-gloom, since the new standard allows lease expenses to be recognized as depreciation instead of actual expenses in the profit-and-loss account. Several studies have estimated that EBITDA of Dutch listed firms will increase by more than 10% as a result of this rule change. The lease concept will become more like how credit rating agencies look at it.
During this session we will explain in further detail the consequences of IFRS 16. In addition, we are going to discuss the opportunities that the transition to IFRS 16 may hold for corporate treasurers and the challenges to bear in mind.
Location: EY Amsterdam, Antonio Vivaldistraat 150, 1083HP