Impenetrably complex financial structures in which important capital resources and business assets do not appear on the balance sheet have long been a source of problems for international regulatory authorities (IASB, FASB, SEC). The 2016 IFRS were therefore established in the interest of greater transparency. These standards make it easier to obtain a complete picture of a business enterprise’s assets and liabilities and prevent the misuse of operating leases to hide such expensive assets as aircraft or buildings.
To whom does this change apply?
All enterprises that prepare their financial reporting in accordance with IFRS, including in particular:
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exchange-listed companies and their subsidiaries in Europe
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companies that are registered in one of the countries that have adopted the IFRS standards
What consequences are to be expected?
Lessees need to recognise on their balance sheets the “value in use” and a liability on the basis of the contractual details provided by the lessor. The operational benefits of an operating lease are, however, retained:
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Effective and simple source of financing
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Improved cash flow
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Predictable monthly payments
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Outsourcing of processes that are only incidental to core business activities (fleet management, maintenance, assistance, accident management, fuel management, etc.)
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Elimination of the risks associated with the asset or its disposal
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Flexible use
You will find more details about the consequences in the Arval white paper “How IFRS16 will affect your business” (PDF).