Many companies use assets through operational or financial leasing. Therefore, almost all companies are affected by IFRS 16 “Leases” standard.
IFRS 16 requires the lessee to recognize a "lease liability" and "right of use of assets" based on future lease payments when the contract begins for all leases.
Leasing transactions enlarge the balance sheet and affect the leverage and capital ratios negatively. The standard has impacts on frequently used financial and performance key indicators such as leverage ratio, current ratio, asset turnover rate, interest coverage, EBIT, EBITDA, net income, profitability per share, return on capital used (ROCE), return on equity (ROE) and operational cash flows.
The effects of the standard are not limited to the financial statements. Its impact on management reporting and budget should also not be disregarded. The ability to reflect the effects of leasing transactions on all kinds of reporting regularly and accurately reveals the need for systems and processes, especially for the companies with a business model based on leases and has many and complex contracts.
Although the theoretical application of the standard seems straightforward however execution of the standard is complex as it requires many assumptions and predictions. The issues that are specific industry in which your company operates, the number of assets leased and the leases have a strategic importance for your company may make it difficult to implement the standard. We can help you on subjects as follow:
We are ready to support you in every stage of our 5-stage transition methodology within the scope of our project prepared according to your needs.
We can assist you in analyzing your complex lease contracts, compiling contract master data, evaluating your accounting policies, making manual calculations for the required reporting periods and preparing entity-specific IFRS 16 implementation guidance.
We, as PwC Turkey team, developed a tool named “Lease Master” where you can calculate lease liabilities and right-of-use asset, prepare disclosures and manage your leasing processes in line with IFRS 16. Here is the link of the video of our tool:
If you do not prefer Lease Master tool, we can support you with IFRS 16 system solution and supplier selection, preparing conceptual design for the selected solution, executing the application process in accordance with the conceptual design, conducting the transition tests and designing the leasing process suitable for the selected solution.