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What you need to know about the new AASB 16 Leasing Standards
There’s hardly an organisation in Australia that doesn’t lease at least some of its assets. Whether it’s your office, vehicles, computers, or photocopiers and other tools, leasing activity is a strong component of many organisation’s ability to operate.
Therefore, it’s essential to understand recent changes to how you report your leases on your financial statements, so that you remain compliant. As the new Australian Accounting Standards Board (AASB) 16 Leasing Standards apply to annual reporting periods beginning on or after January 1 2019, this year is the first time your annual reports will include this new change.
What has changed?
Before the new Leasing Standards were introduced, your leases were classified as “operating leases”. This meant that while their expenses were recorded through income statements over the life of the lease, they had no impact to the balance sheet or statement of financial position. This could be risky, because as most organisations have at least some leasing activity that is essential to business operations, the associated commitments and liabilities weren’t clearly indicated in financial statements.
Since AASB 16 has been implemented, you now need to include your leased assets in your balance sheet as “non current assets (right of use assets)”. You also need to include your lease obligations (the amount your organisation owes over the whole period of the lease) as a liability.
Exceptions to the new Leasing Standards
Amendments to AASB 16 and AASB 1058 will offer temporary relief for not-for-profit entities regarding measuring right-of-use assets arising from peppercorn leases, for annual reporting periods beginning on or after 1 January 2019.
Amongst your lease activity, there are two exceptions to reporting in the new standard that you can choose to apply:
Short-term leases: leases with terms of 12 months or less.
Low value assets: “low value” is not defined by the standard, so this relates to your organisation’s own assessment of value.
Complying with the new Standards
Non-compliance with AASB 16 Leasing Standards will risk inaccurate reporting in your financial statements. Our team at Dickfos Dunn Adam can work with you to understand how these new Standards apply specifically to your organisation, where exceptions may apply and ensure correct disclosure for your financial statements. Get in touch today to discuss how the changes will affect your reporting.