The Top 6 Questions on Handling Disclosures according to IFRS 16 with LucaNet
Companies are required to apply the new IFRS 16 for fiscal years that commence on or after January 1, 2019. Having replaced the former IAS 17, the standard presents new rules for lease accounting – including a general obligation to recognize right-of-use assets and lease liabilities, which will require a great deal of conversion effort, in particular from lessees. Our tool for lease accounting supports you as a lessee not only in preparing and evaluating leases in accordance with IFRS 16, but in handling disclosures as well.
Qualitative and quantitative disclosure obligations pursuant to IFRS 16
IFRS 16 includes extensive qualitative and quantitative disclosure requirements for leases. Luckily, LucaNet's solution for lease accounting makes it easy to generate the bulk of the quantitative disclosures. This blog article presents a condensed overview of the options at your disposal and answers the six most pressing questions:
Quantitative disclosures for lessees in accordance with IFRS 16
Presentation of quantitative disclosures in the LucaNet tool for lease accounting
Fig. 1: Disclosures according toin line with IFRS 16.53 and IFRS 16.58 in a statistical ledger
In the tool for lease accounting, quantitative disclosures are presented in a separate statistical ledger. The drop-down function makes it easy to bring up values pertaining to your individual leases in either the cost center dimension or the partner dimension.
Question 1: How do I proceed with disclosures for each asset class?
According to IFRS 16.53(a), lessees are required to present a breakdown of depreciation on right-of-use assets by asset class. With the solution for lease accounting, you can add an asset class to each contract as separate information and then append it to IFRS 16 accounts as a suffix. The individual asset classes will then be presented in a clearly arranged overview.
In addition, you can use the tool for lease accounting to break down to the carrying amounts of right-of-use assets by asset class in accordance with IFRS 16.53(j).
Question 2: How can I manage expenses relating to short-term leases and leases relating to low-value assets?
According to IFRS 16.6, recognizing assets and liabilities for short-term leases (those lasting no longer than one year) and leases involving underlying assets of low value is optional. If you take advantage of this exemption, you will need to disclose the expenses from such contracts separately in line with IFRS 16.53(c) and (d). The tool for lease accounting provides for clear separation of the related expenses. An exemption also applies to short-term leases lasting no longer than one month. In this case, you are not required to include the corresponding expenses in the disclosures.
Question 3: How do I proceed with expenses for variable lease payments that are not included in the lease liability?
Variable lease payments that are not linked to an index or price are to be recognized as expenses and not included in the measurement of the lease liability. In this case, however, you must disclose these expenses in the notes. Since the tool will post these expenses to a separate account, they can also be displayed separately in LucaNet.
Question 4: How should I manage the cash outflow for leases?
Since the tool performs all postings along with the corresponding transaction types, you can view the entire cash outflow for leases in LucaNet by excluding transactions that do not impact cash flow (by differentiating accrued interest expenses pertaining to non-monthly payments, for example).
Question 5: How do I handle additions to right-of-use assets?
Figure 2: Fixed asset schedule displaying right-of-use assets by asset class
The transaction types also enable you to present additions to right-of-use assets – as well as all other transactions, such as disposals or remeasurements – in a separate schedule.
Question 6: How should I approach the maturity analysis according to IFRS 7?
IFRS 16.58 requires that you, as a lessee, disclose a maturity analysis on lease liabilities in accordance with IFRS 7 – one that is separate from maturity analyses for other financial liabilities. Since undiscounted lease payments must be factored into this maturity analysis, the respective contracts must be imported separately with a discount interest rate of 0% for the corresponding disclosure. The lease payments will then be split into:
- a short-term (up to one year),
- a medium-term (between one and five years), and
- a long-term portion (after five years).
More information on IFRS 16, a leading topic at present
Our IFRS 16 team will be happy to introduce you to LucaNet's solution for the accounting for leases. If you’re interested, simply contact our experts at email@example.com.
In the meantime, you can also download our flyer on the LucaNet lease accounting tool: