A few years ago, the rules regarding how companies should report their lease agreements changed. Kevin Hall from Tiego and Michael Thorstensson from Deloitte share insights and experiences since the implementation of IFRS 16 Leasing with FAR.
Clothing companies renting their store premises, construction companies leasing excavators, or logistics companies renting airplanes or trucks—examples of leasing abound and span everything from small-scale businesses to large publicly traded corporations.
Since 2019, a new standard for accounting lease agreements has been in effect. IFRS 16 Leasing, which replaced the previous standard IAS 17, applies to all groups using IFRS (International Financial Reporting Standards) as their accounting framework.
Read more about Kevin's reflections here: https://www.far.se/ekonomisverige/finansiell-rapportering/5-ar-efter-inforandet-av-ifrs-16-sa-funkar-nya-leasingstandarden/
What does IFRS 16 Leasing mean and what was its purpose?
Michael: – IFRS 16 Leasing means a uniform accounting treatment for all agreements that meet the standard's definition of a lease agreement. Unlike the K3 framework, IFRS 16 makes no distinction between financial and operating leases for the lessee. This means that virtually all lease agreements must be recognized on the balance sheet as an asset and a liability.
Who needs to apply IFRS 16 Leasing in Sweden?
Kevin: – It applies to all companies using the IFRS framework—that is, all listed companies in Sweden, but also unlisted companies, often with global operations and foreign investors, that have chosen to use the model themselves.
What challenges exist with the current standard?
Michael: – It is technically complex for users. The standard also requires greater access to information and more people to be involved. Another challenge is that the standard is in many ways designed from a perspective based on the individual contract.
What is the level of knowledge among companies using the standard?
Michael: – The vast majority study it carefully and are truly committed to getting it right. But for some, the system they use for reporting becomes a bit of a "black box." It's important to understand the framework and the input data as well.
Kevin: – I feel that many studied extensively around 2018 ahead of the implementation, but are not quite as sharp or up to date today. But we help customers read the regulations, provide information about what data is required and what to enter so the system does what they want.
Lessons learned five years after implementation
Kevin: – One lesson is that many customers were quite late and underestimated how long it would take for the organization to familiarize itself with a new regulatory framework.
Michael: – The fact that companies have taken on greater obligations and more information requirements has also been positive and benefited the internal monitoring of operations. For multinational companies, for example, it has made it possible to gain better control and oversight of leasing activity in a subsidiary.