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IFRS 16 Leases – how will it affect European companies?
IFRS 16Leases will bring a fundamental change in the way leases are accounted for in the financial statements of lessees. In March this year the European Financial Reporting Advisory Group (EFRAG) issued its endorsement advice on IFRS 16 to the European Commission. EFRAG’s advice went far beyond the familiar technical endorsement criteria to assess the economic and behavioural impact of the new standard. EFRAG ultimately concluded that IFRS 16 meets the relevant technical conditions and, supported by a detailed impact assessment, that it would also be conducive to the European public good. If the Member States and the European Parliament agree, final endorsement can be expected around the end of the year – bringing to a conclusion a project that started almost two decades ago.
IFRS 16 and its (almost) equivalent US standard will bring a fundamental change in the way leases are accounted for in the financial statements of lessees. With a few exceptions, lessees will recognise on their balance sheet a right-of-use asset and a liability for each lease. The long-standing distinction between finance and operating leases – the subject of many discussions between companies and their audito...