International lease accounting standard
On 13 January 2016, the International Accounting Standards Board (IASB) published the new IFRS 16 lease accounting standard, which replaced the IAS 17.
While for the lessor current lease accounting principles stayed broadly unchanged, the lessee was affected by significant changes. The lessee (= the company who leases an asset) now has to account for a right-of-use asset out of a lease contract on his balance sheet. This basically means that he has to take the financial components of the lease, represented in the finance component of the monthly rental, on his books (as asset and liability). In technical terms, he will have to depreciate the asset, amortise the lease liability and account for the interest on the lease liability. The costs for the services combined with the lease are not to be accounted for as an asset and only impact profit and loss statements on a monthly basis similar as under current accounting standard. (Exceptions to the new rule are small ticket leases (<= 5,000 USD) and short term leases (< 12 months)) suppliers.
How it works
When to start?
We expect operating car lease to continue as our customers 1st choice for business mobility as the impact on balance sheet, risk positioning and incorporated asset responsibilities are still lower than ownership of cars. The average value of a right of use asset is according to our estimation in average ¼ of the book value of a car (depending on term). The residual value at the end of the lease terms is excluded from the balance sheet recognition and all residual value related expertise, especially in area of remarketing and risk assessment, is born by the lessor.
We at Alphabet will support our customers during the process of change and beyond! In all our Alphabet countries IFRS 16 customer champions are available for your questions or information needs. Alphabet will provide you with the upmost of service and information on the upcoming changes and required details on your contracts. For detailed design and introduction of your accounting processes under the new IFRS 16 you should as well not forget to primarily align in time with your local auditor and/or financial system provider.