IFRS 16 defines what a lease is and, subject to certain recognition exemptions, requires companies to bring operating leases onto the balance sheet – only finance leases were included previously. Less understood are the broader impacts of the standard beyond finance in virtually all business operations, from information technology to human resources.
This paper outlines the broader impacts and the strategies businesses should adopt in response. Its key conclusions include:
- While implementation patterns vary across the region, the far-reaching impacts of IFRS 16 argue for an early response, regardless of where a company operates.
- With the balance sheet implications, companies must consider the indirect changes IFRS 16 will bring to performance measurement and data management, particularly in regions where lease structures and information vary.
- Treasury departments should anticipate increased demand for discount rate calculations, and closely monitor the consequences of IFRS 16 for loan covenants and foreign exchange hedging strategies.
- A company’s IFRS 16 transition approach should be based on careful assessment of data resources and the input of all functions involved. The importance of talking to stakeholders early and managing their expectations on the financial impacts of IFRS 16 should not be underestimated.
- Careful balancing of resources and strategic partnerships can help ease firms through the difficult transition phase and pave the way for ongoing compliance.