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New leasing standard presents big challenge for banks

New leasing standard presents big challenge for banks

ESBG warns in EFRAG preliminary consultation paper on endorsement of IFRS 16 leases






>> See the consultation response






​BRUSSELS, 14 December 2016 – Leasing products provided by savings and retail banks would be jeopardized under the new proposed IFRS16 on leases, ESBG warned in its response this week to the EFRAG consultation on the accounting standard. 

The association, whose members view leases as an important part of their business model, see “questionable benefit” of the new standard. They also predict large associated implementation costs should new standard be approved and have deep prudential impact and slow activity by lessors. ESBG members reached general consensus that the accounting side of IFRS 16 seems reasonably acceptable, but they raise concern over the prudential impact as the face of the balance sheet could be dramatically changed for lessees, without changing the risk profile of the entity.

Background

IFRS 16 was issued in January 2016 and applies to annual reporting periods on or after 1 January 2019. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is less than 12 months or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor IAS 17. According to IASB Chairman Hans Hoogervorst, the new leasing standard ends the “guesswork involved when calculating a company’s often substantial lease obligations.” 

​The standard endorsement process has commenced in the EU with the European Commission asking endorsement advice from the European Financial Reporting Advisory Group (EFRAG). As part of this process EFRAG issued a Preliminary Consultation Document relating to the endorsement seeking constituents’ views on a number of specific issues as well as opening the topic up to general comments.

​Research planned by EFRAG 

In parallel to this consultation, EFRAG have been carrying out additional research and outreach projects and analysing the results of an economic study it has commissioned on the effect analysis of IFRS 16. The results of the consultation will be discussed by the EFRAG Board in early 2017 and Draft Endorsement Advice is expected in the coming months.


>> See the consultation response



Leasing; IFRS