Ten Years On, How Is IFRS 16 Looking?

Leaseurope response to the Request for Information for the International Accounting Standards Board’s Post-Implementation Review of IFRS 16 Leases in October.  We noted that for most large European firms using IFRS 16, non-property leased assets (mainly equipment and vehicles) have turned out to be very small as a percentage of total ‘Right of Use’ (leased) assets and total firm assets.  However, the implementation costs have been heavily weighted towards equipment and vehicle leased assets, as they are typically high in quantity and diverse in type. The exceptions are in just a few industries including transportation and equipment rental.

We suggested, therefore, that for many lessees, the implementation costs as they relate specifically to non-property assets are likely to have been disproportionate to the benefits to users. We called for the IASB to ensure that in carrying out its Review, it clearly distinguishes between property, ‘mainstream’ non-property equipment and vehicle leases, and large (mainly aircraft and shipping) equipment leases, as the costs for preparers and benefits to users are likely to vary significantly between them.

Our response also called on the IASB to record that there is no evidence whatsoever to suggest that the use of leasing has changed in Europe because of the implementation of IFRS 16, contrary to the unfounded suggestions during the standard setting process that firms used operating leases to somehow misrepresent their financial affairs.

We noted that the small asset exemption does little to balance the costs and benefits, and that the substitutability rules should be reviewed because at present they risk making circular economy arrangements unnecessarily cumbersome.

The new ‘Right of use’ lease accounting model in IFRS 16 has not been extended for use by small and medium-size companies in Europe (99% of European businesses) by national accounting regulators. Leaseurope has always made clear that the costs of doing so could significantly exceed the benefits to users of accounts. Our response to the IASB, as well as our earlier feedback to the European Financial Reporting Advisory Group as part of the Review, is intended to ensure that the SMEs in Europe continue to be able to apply the existing simpler, and well-understood, lease accounting rules.

For more information, please contact Julian Rose at  j.rose [at] leaseurope.org