2016 IBO CLIENT ADVISOR Y BOARD IFRS 16 LEASES IFRS 16

Transcription

1 2016 IBO CLIENT ADVISOR Y BOARD IFRS 16 LEASES IFRS 16

2 IFRS 16 : Summary (1/3) IFRS 16, what is it? Why? Last January, after 10 years of debates, the IASB published a new accounting standard about leases called IFRS 16 : Whereas today Operating Lease customers book the lease payments directly in their P&L, under the new standard, «lessees» will need to recognise both an asset (the «Right of Use», equal to the net present value of minimum future payments) and the corresponding liability on their balance sheet. Today, there is no recognition of the assets and liabilities in the balance sheet of the lessee resulting from operating leases : Þ The lease instalments are considered as expenses and not as a debt obligation. Operating lease has therefore been seen by standard setting organizations (IASB, FASB, SEC) as a way to hide assets from the financial analysts, in particular expensive assets such as airplanes or buildings. 2

3 IFRS 16 : Summary (2/3) Who does it apply to? When? To all companies that establish their financial reporting under IFRS, and in particular : Listed companies and their subsidiaries ( Entities under US GAAP are not concerned ) ; Registered companies in one of the countries which have adopted IFRS standards locally. Implementation date is January 1st 2019, subject to approval by the European Community. However some clients might require a draft balance sheet to be produced as early as January 1st

4 IFRS 16 : Summary (3/3) Which impacts? Next steps? For lessees : the booking of a «Right of Use» and a liability on the basis of contracts information provided by the lessors. However, the operational benefits of OL remain: Effective and easy source of financing, Improved cash flow, Predictable monthly payments, Outsourcing of non core processes (fleet management, maintenance, assistance, accident management, fuel, ) Removal of asset and disposal risks, Flexibility of use. From the start Arval has been proactively participating in discussions with professional associations and audit firms and is fully committed to deliver the most straightforward reporting solutions to its customers. 4

5 When IAS 17 becomes IFRS 16 Current IAS 17 Balance Sheet IFRS 16 Balance Sheet Right of Use Lease Liabilty Asset Variation = Right of use amortization NOTHING Liability Variation = Lease Liability Reimbursement P&L Rent P&L Cash = P&L Cost Fixed P&L Impact Right of Use Interests Cash <> P&L Cost Front End Loaded P&L Impact 5

6 When IAS 17 becomes IFRS 16 Let s take some figures Purchase Price : Residual Value : Market Interest rate : 6% Duration : 48 Months Monthly Rental : 500 Balance Sheet Current IAS 17 Year 1 : Year 2 : Year 3 : Year 4 : P&L Total :

7 When IAS 17 becomes IFRS 16 Let s take some figures IFRS 16 Balance Sheet - Assets Purchase Price : Residual Value : Market Interest rate : 6% Net Present Value : Duration : 48 Months Monthly Rental : 500 Inception : Right Of Use : Year 1 : Right Of Use : Liability Liabillity : Liability : Right of Use Plan Opening Net Closing Net Year Year Year Year Year 2 : Right Of Use : Year 3 : Right Of Use : Year 4 : Right Of Use : 0 Liability : Liability : Liability : 0 Reminder IAS 17 - Balance Sheet Plan Opening Net Rental Closing Net Interest Book value Year Year Year Year

8 When IAS 17 becomes IFRS 16 Let s take some figures IFRS 16 - P&L - Purchase Price : Residual Value : Market Interest rate : 6% Duration : 48 Months Monthly Rental : 500 Net Present Value : Year 1 : Costs Right Of Use amortization : Liability s interest : Total Year 1 : Reminder Revenus : IAS 17 Total Year 1 : Right of Use Plan Opening Net Closing Net Year Year Year Year Year 2 : Right Of Use amortization : Liability s interest : 846 Total Year 2 : Year 3 : Right Of Use amortization : Liability s interest : 528 Total Year 3 : Total Year 2 : Total Year 3 : Plan Opening Net Rental Closing Net Interest Book value Year Year Year Year Year 4 : Right Of Use amortization : Liability s interest : 191 Total Year 4 : Total : Total Year 4 : Total :

9 Comparison of Operating Lease with the other Funding Sources (under IFRS 16) Comparison vs Today vs Lease vs Full Ownership Assets Liabilities EBITDA Forecasting Cash Flow Accounting Treatment Risk Exposure More non core tasks (Purchase, SMR, disposals) 9