Potential Changes With New Leases Standard
- A proposed new definition, more elaborated, emphasizing the fact of controlling the right to use an identified asset and the decision of how to use it.
- All financial leases and operating leases have to be recognized in the balance sheet, with the exception of short-term leases and small leases assets. It will depend on the number of the operating leases each company has, but the increase of the total assets and liabilities is guaranteed. Therefore, each company will need to keep under control the different ratios as high debt ratio or equity, just to name a few.
- Income statement recognition profile, depending on the type of the lease (A or B). This is the point where the divergences of criteria between the Boards have become more tangible.
- New model for lessor accounting. The “receivable and residual” approach would be eliminated in this new document, with all financial leases tentatively being treated as a sale.
- More disclosure within the financial statements. For example, the Lease ROU (Right-of-use) Asset information will have to be included.
- We will have to wait to finally know what retroactive transition approach will use for lessees and lessors. They agreed to have a transition relief provision, but it is not that certain what kind of reassessments will be applicable.