In the accounting area, we have been working on accounting in two ways the lease in the entities, operating and financially, I am sure that most of the accountants have accounted for, presented and disclosed leasing in the financial statements, this due the high percentages of companies that are lessors or tenants.
First let's make the following terms clear:
Lease: A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.
Finance lease : A lease that transfers substantially all the risks and benefits inherent in ownership of the underlying asset.
Operating lease : A lease that does not transfer substantially all the risks and rewards Inherent in ownership of the underlying asset.
Lessor An entity that provides the right to use an underlying asset for a period of time in exchange for consideration.
Lessee: An entity that obtains the right to use an underlying asset for a period of time in exchange for consideration.
Right-of-use asset : An asset that represents a right for a lessee to use an underlying asset during the term of the lease.
Underlying asset: An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lessee.
Now, we must apply all our effort to the analysis of the lease contracts and analysis also of the form of these operations of the entity, in this type of contracts, a lease will exist when the client controls the asset that is identified as specific to the agreement, and it will be recognized as a service when the supplier is the one who controls the asset. This implies that it is necessary to identify which contracts are, in substance, leases, and not service contracts, which is more relevant due to the significant differences in registration between service and lease.
IFRS 16 was issued by the IASB in January 2016 and enters into force on January 1, 2019 and repeals nic 17, IFRIC 4, SIC 15, SIC 27, companies must ensure that there is effective implementation and have internal controls that ensure the successful application of this standard, lessees must now recognize in the statement of financial position the right to use an asset on the commencement date, a lessee will measure a right-of- use asset at cost and a liability derived from the debt owed to the lessor during the agreed term at the present value of the payments.
In the income statement, an expense corresponding to depreciation and an interest expense must now be recognized (it will no longer be linear in time).
Regarding the subsequent measurement we have that regarding the asset: after the commencement date, a lessee will measure its asset by right of use applying the cost model, unless it applies the measurement models described in paragraphs 34 (value IAS 40 Investment Property) and 35 (the IAS 16 revaluation model).
But regarding fair value, this standard dictates that:
If a lessee uses the fair value model in IAS 40
Investment Property to its investment property, the lessee will also apply that fair value model to the right to use assets that meet the definition of investment property in IAS 40.
And if the right to use the assets relates to a class of property, plant and equipment to which the lessee applies the revaluation model in IAS 16, the lessee could choose to use that revaluation model for all right assets. of use of assets related to that class of property, plant and equipment.
Regarding liabilities:
This rule tells us that
After the commencement date, a lessee will measure a lease liability:
- Increasing the carrying amount to reflect the interest on the lease liability; reducing the carrying amount to reflect the lease payments made; yRemeasuring the carrying amount to reflect the new measurements or lease modifications specified in paragraphs 39-46, and also to reflect the revised substantially fixed lease payments.
The classifications of leases between operating and financial will disappear, and they will all be treated in the same way as finance leases are recognized today.
This fact will have an impact on the financial statements that each entity must analyze to manage. For example, the size of the statement of financial position will increase with new assets but it will also increase its indebtedness.
For the lessor, the initial recognition and measurement under this standard has not changed substantially, the lessors will continue to distinguish the essence of the transaction and not the way to classify the lease as operating or financial, for operating leases the underlying asset is recognized and for the leases classified as finance the lessors will write off the underlying asset and recognize a net investment for the lease with an account receivable, and any difference that arises between the two will go directly to results, assuming that the transaction is at fair value.
Regarding the subsequent measurement, we have that the operating lessors will recognize the collections as rental income, for the financial ones, the financial income will be recognized throughout the lease term, taking into account a pattern that reflects a constant rate of return on the investment Net financial (accounts receivable) of course, this investment will decrease as the collections are made.
In summary we have that for lessors the changes are not significant but for lessees, it is essentially different and IFRS 16 can be expected to have a significant impact, particularly for entities that previously had a large proportion of their financing 'outside of financial condition 'in the form of operating leases. This operating lease-style accounting treatment is no longer available, except for short-term leases (lease term of 12 months or less) and leases of low-value assets, paragraph 6.
I know that this is a very technical subject and many people consider it tedious, but in the same way, it must be managed and comply with the rules that ultimately add to the quality of the financial information presented for decision-making and that is very useful for companies. organizations, in this article do not deal with everything related to this standard but what seems basic to me.
In short, we must make an effort to maintain the financial information with the quality level that its users deserve and for that, among other things, we must know and apply international financial information standards, since several months have passed since its issuance, which implies the fact that we should have informed ourselves of it and consequently understand that many leases that were considered as operating under IAS 17, must now be presented in the statement of financial position with the implementation of IFRS 16, my invitation is to develop and apply the appropriate processes as soon as possible in these aspects and thus emerge victorious from these change processes.
Author: Lcdo. Michael Aular - Micdan Consulting
