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Lease Accounting Rule Changes Tipped to Bring $3bn onto Company Balance Sheets Worldwide

Written by: Paul Gagan on Tuesday 19/04/2016

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As much as $3 billion could soon be added to the balance sheets of companies around the world as a result of changes to international accounting rules.

The International Accounting Standards Board (IASB) is in the process of overhauling its rules relating to leasing commitments, including those linked to commercial property, and the result looks set to be some very significant additions to the balance sheets of thousands of businesses.

Having recently published a new set of International Financial Reporting Standards (IFRS) in relation to leasing deals of all kinds, the IASB has explained that its aim is to improve transparency in these contexts in more than 100 countries worldwide.

Until now, rental deals and other leasing liabilities have not needed to feature on company balance sheets but that is set to change and the figures that are to be newly-disclosed look likely to be very large indeed in many cases in the UK, across Europe and on a global basis.

“These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations,” said Hans Hoogervorst, the IASB’s chairman in a statement.

“The new standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off balance sheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.”

It’s understood that retailing companies, who often lease premises on a considerable scale as a routine part of their operations, could be among those most acutely impacted by the ongoing regulatory overhaul.

The changes aren’t expected to directly impact the cash flows of any companies regardless of the scale of their relevant liabilities but companies are nonetheless being encouraged to understand more about their own position with respect to large-scale leasing deals of all kinds.

“There is much work for companies to do to understand and implement the changes, not least in the area of data collection, and this work should be started sooner rather than later,” said Nigel Sleigh-Johnson from the Institute of Chartered Accountants in England and Wales (ICAEW).

Written by: Paul Gagan on Tuesday 19/04/2016

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