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Corporate entities will have to take a closer look at the new AASB 16 Leases accounting standard due to its wide-reaching impact, warns a mid-tier firm.
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Take a ‘closer look’ at new Leases standard, accountants urged
28 December 2018
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9 minute read
The new accounting standard AASB 16 Leases comes into effect 1 January 2019 and is one of the “triple threat”of major accounting standards being rolled out, including AASB 19 Financial Instruments and AASB 15 Revenue from Contracts with Customers.
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AASB 16 Leases will see virtually all assets, with exceptions for smaller assets and those on 12-month leases, to be recognised on a balance sheet.
Speaking to Accountants Daily, BDO partner Aletta Boshoff believes entities will need to consider the full impact of the new standards.
“Have you considered how it will impact their financials, how it will impact the ability to declare dividends, how it will impact governance, how it will impact the way they remunerate their staff,” said Ms Boshoff.
“IFRS 16, because it is bringing so many liabilities onto the balance sheet and has a negative impact on profit and loss, that is something people will definitely have to look at closely especially if they've got a lot of leases or long-term leases.”
A report by Maia Financial of 250 chief financial officers in the first half of 2018 had found that only 41.6 per cent had reached out to their advisors, auditors, consultants or finance providers on the implications of the new standards.
Pilot Chartered Accountants partner Chris King also earlier spoke of the need for companies to understand the impact of the new standards.
“These changes will seriously impact key financial metrics such as gearing ratios, current ratios and EBITDA,” said Mr King.
“As an example, anyone dealing with contracts that have earnouts based upon an EBITDA, multiple or employee bonuses based on EBITDA achievement, could potentially pay a lot more than they anticipated based upon the new standard.
“Current ratios, which for many organisations are close to 1:1, may drop below this benchmark threshold, potentially leading others to question their financial viability.”
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