New Lease Accounting Rules to Hit Charterers by 2019

From 1 January 2019, most time charters with durations exceeding 12 months will be capitalised under International Financial Reporting Standards (IFRS), but voyage charters are less likely to be affected, according to Mr. Wong Koon Min, Partner and Head of Professional Standards at international accounting firm Moore Stephens LLP.This latest development is based on a project update issued by International Accounting Standards Board (IASB) on 29 October 2015.


These requirements differ significantly from current rules, where charterers only capitalise the ship if the charter contract transfers the significant risks and rewards of the ship to the charterer. Under today’s IFRS requirements, a vanilla time charter contract lasting a few years with no other features (e.g. options to purchase the ship or extend the charter) is unlikely to require capitalisation due to the generally long economic lives of vessels.

The update clarifies that IASB expects to issue the new accounting requirements for leases by end of 2015, and enforce them in 2019. The update differentiated contracts which qualified as leases and hence will be capitalised under the new requirements, from those which did not.

Specifically, contracts where a lessee obtains most of the economic benefits during the lease period, and is able to direct the use of the asset during this period, should be capitalised by the lessee. The update is not explicit that time charters are capitalisable leases, however the examples that accompanied the update suggest that this is the case. One example refers to a five-year charter contract where the charterer can direct the vessel destination and cargo during the contract period. A second example is a carriage contract that specifies the cargo, destinations, dates, and vessel name (which will be typical in a standard voyage charter contract). The contract in the former example contains a lease which is capitalised; the latter does not.

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