Ifrs 16 Leases Slideshare Jan 2016

IFRS 16 Leases
A more transparent balance sheet
13 January 2016
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the KPMG network of independent
kpmg.com/ifrs
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
More transparent lease accounting
“IFRS 16 will bring most leases on-balance
sheet from 2019. All companies that lease
assets for use in their business will see an
increase in reported assets and liabilities.
This will affect a wide variety of sectors, from
airlines that lease aircraft to retailers that Kimber Bascom,
lease stores. The larger the lease portfolio, the KPMG’s global IFRS
greater the impact on key reporting metrics.” leasing standards
leader
member 2
What’s the issue?
Currently analysts adjust financial
statements for off- balance sheet
leases
Under IFRS 16, companies will

bring these leases on balance
sheet, using a common
methodology
member 3
Major impacts for
lessees
Lessees face major changes
All major leases on balance sheet
Balance sheet
Asset
= ‘Right-of-use’ of underlying asset
Liability
= Obligation to make lease payments
member 5
member 5
Impact on balance sheet
Companies with operating leases
will appear to be more asset-rich,
but also more heavily indebted
Asset Liability
member
Impact on profit/loss
Total lease expense will be
front-loaded even when cash
rentals are constant
Depreciation Interest
Cash rental payments
member 7
Impact on financial ratios
Profit/loss Balance sheet Ratios
EBITDA Total assets Gearing
EPS Net assets Interest cover

(in early years) Asset turnover
member 8
New definition, new
accounting
Lease definition
The new on/off-balance sheet test for
lessees – a key judgement area
Lease classification test
ON
OFF
Lease
New standard Finance

lease
member 1
Old standard Service
Operating
lease
member 1
Lease definition – Control
The new definition
increases focus on who
controls the asset and may
change which contracts are
leases Lease Not a lease
?
member 1
Lease definition – Exemptions
Two major optional

exemptions make the
standard easier to Short term Leases of low
apply leases value items
≤ 12 months ≤ USD 5,000

for example
member 1
Measuring the lease liability
Present value of expected payments at en
Present value of lease rentals
= +
Lease liability
member 1
Variable lease payments
Which variable lease payments are
included in the lease liability?
Payments based on an Payments based on

index or rate turnover or usage
member 1
Lessor accounting
Lease classification test
Lessor accounting
remains similar to
Finance leases and operating leases
current practice…
but lacks consistency with Consistent accounting model for lessors and lessees
new lessee accounting model
member 1
Sale-and-leaseback
Is there
a sale?
IFRS 16 essentially kills Yes No
sale-and-leaseback as an
off-balance sheet financing
structure On-balance
On-balance
sheet financing, potentially at fair
sheet lease at cost
member
Multiple transition
options
Applying the new lease definition
Cost Comparability
Apply the new definition to all contracts
OR
Grandfather existing contracts and
apply the new definition only to new
contracts
member 1
Applying the new standard
A lessee can choose to
apply the standard… Cost Comparability
Retrospectively to all
accounting periods
OR
As a ‘big bang’ at the date of initial
application
member 1
IFRS ≠ US GAAP
IFRS vs US GAAP
We expect the FASB to publish its new standard soon
IFRS and US GAAP standards converged?
Lease
Leases on balance sheet for Lessor
definition
lessees accounting
Lessee
Detailed measurement and Exemption for
accounting
transition requirements low value
model
items
member 2
Next steps
Things to think about now
Which contracts are leases?
Which transition options to choose?

Some questions to
Database of all leases?
assess the impact on
your company’s
Systems and processes in place?
financial statements
What about ratios and covenants?
member 2
Next steps
Read the new Think about your Watch out for our
standard implementation detailed analysis at
plan kpmg.com/ifrs
member 2
kpmg.com/socialmedia kpmg.com/app
© 2016 KPMG IFRG Limited, a UK company limited by guarantee and a member firm of the
KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavour to provide accurate
and timely information, there can be no guarantee that such information is accurate as of the date
it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular
situation.

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IFRS 16 Leases

A more transparent balance sheet

Under IFRS 16, companies will

EBITDA Total assets Gearing

EPS Net assets Interest cover

Lease classification test

New standard Finance

Two major optional

≤ 12 months ≤ USD 5,000

Payments based on an Payments based on

Apply the new definition to all contracts

IFRS and US GAAP standards converged?

Which transition options to choose?

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