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Cushman & Wakefield
Launches Interactive Lease
Accounting Calculator
Current Standard
IAS 17 / US GAAP
New Standard
IFRS 16 / Topic 842
Finance
Leases
Operating
Leases
All Leases
Assets
-
Liabilities
£ $ €
-
£ $ €
Off Balance
Sheet Obligations
FINANCE
NEW LEASE ACCOUNTING RULES
The new lease accounting rules will
fundamentally change the way leases
are recognized on a company’s financial
statements.
For companies that report under
International Financial Reporting Standards
(i.e. non U.S. companies), the new rules
apply from 2019. For U.S. companies, the
introduction of the new U.S. GAAP rules
is being phased in with public companies
adopting in 2019 and private organizations
in 2020.
These new rules will impact all future
leasing decisions such as acquisitions,
renewals and re-gears, so it is important
that everyone is aware of these changes.
BALANCE SHEET CHANGES
From a Balance Sheet perspective, the
treatment of leases under the new IFRS and
U.S. GAAP standards is similar. In future,
all leases will appear ‘on-Balance Sheet’ as
an Asset and Liability. On implementation,
Balance Sheets will balloon and companies
will appear to have a greater asset base
with higher levels of debt.
PROFIT & LOSS CHANGES
The Profit & Loss (Income Statement) is
where the new IFRS and U.S. GAAP standards
differ.
U.S. GAAP Topic 842 – Dual model
Companies will need to classify their leases as:
•
Finance Lease:
Similar P&L (Income
Statement) treatment to IFRS 16.
•
Operating Lease:
Straight-lined lease
expense is recorded as a single line in
operating expenses in the P&L
Under the new U.S. GAAP standard, the
existing Finance Lease / Operating Lease
treatment for the P&L has been retained.
As the majority of real estate leases will be
classified as ‘Operating Leases’ under the
new U.S. GAAP standard, the Profit & Loss
will continue to be the
same as the rent paid.
IFRS 16 – Single model
For companies that report under IFRS (i.e.
Non- U.S. companies), the Profit & Loss will
no longer equal the rent paid under the lease.
Instead, lease payments will be split into:
•
Amortization
– Recognized on a straight-
line basis over the lease term
•
Interest
– Front loaded at the start of the
lease
The Profit & Loss will be
higher than rent
at
the start of the lease. The P&L will
reduce
over the course of the lease term due to
the lower interest charge. Companies will
be seeking to minimize the ‘P&L spike’ at
the start of the lease wherever possible by
seeking shorter, more flexible lease terms.
Balance Sheet Impact
300
400
500
600
700
200
100
0
RoU Asset
Lease Liability
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Thousands USD
800
900
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