IFRS 16 Leases

International Accounting Standard IFRS 16 - Leases replaced International Accounting Standard IAS 17 from 1st January 2019. The objective of the new standard is to distinguish the lease from a service contract and to ensure that the company will report all its liabilities and assets relating to the lease in the balance sheet.

IFRS 16 applies to companies that account for or report under IFRS. They are mostly medium and large enterprise that have a large volume of leased assets in the form of operating leases.

Entities that previously adopted IFRS 15 (adjusting the recognition of revenue from contracts with customers) can already use IFRS 16. 
 
Objectives of the new IFRS 16:

Unify leasing reporting rules.

Remove subjectivity when assessing whether a financial or operating lease is involved.

Report assets and liabilities in the lessee's balance sheet for both types of leasing (financial and operating).
 

Significant change resulting from IFRS 16:

An asset, i.e. an item acquired both in the form of a finance lease and an operating lease, is reported in the balance sheet by the lessee (the right to use the asset) rather than the leasing company.

The difference between financial and operating leases is eliminated from the point of view of lessee reporting.

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