Disclosure and presentation under IFRS 16: can you access the information you need?

With IFRS 16, the new lease accounting standard, coming into effect soon, shipping companies need to prepare for the new presentation and disclosure requirements. Many will need to make changes to their systems in order to be ready. 

Lessees face most change, because all lease arrangements will be on balance sheet. The new accounting requirements of IFRS 16 may have a significant impact on lessees’ financial statements. For example, entities could see an increase in their assets and liabilities, improved operating profitability over the duration of a lease, improved operating cash and an increase in reported financing cash outflows.

Entities that charter in vessels must recognise both a 'right of use' asset and the related lease liability. The asset may be shown separately either on the face of the statement of financial position or combined with similar underlying owned assets, with the right of use assets then shown separately in a note. The related lease liability may be presented separately on the face of the statement of financial position. Alternatively, the lessee can disclose which line item or items include these liabilities. There are also specific presentation requirements for the income statement and statement of cash flows.

In terms of disclosures, IFRS 16 sets out an overall disclosure objective: 'to disclose information for users to assess the effect that leases have on the financial position, financial performance and cash flows'. Lessee disclosures likely to meet this objective include details of the total depreciation charge for right of use assets, the total cash outflow for leases and a maturity analysis of lease liabilities, among others. Some entities may need to make changes to their systems in order to capture all necessary information in an effective way.

Lessees may also need to provide additional quantitative and qualitative analysis, applying judgement to determine the level of necessary detail. However, the financial statements must include details about the nature of the lessee’s leasing activities, such as the flexibility in lease arrangements, restrictions in leases and sensitivity to key variables.  

Life is somewhat simpler for lessors. The presentation requirements under IFRS 16 are the same as those under the previous standard. Although IFRS 16 has substantial disclosure requirements for lessors, many are similar to current requirements, with only a few additions. The financial statements should include information about the nature of leasing activities and how the risks associated with rights retained as owner in the underlying assets are managed. This could be through, for example, the use of residual value guarantees, buy-back arrangements or variable lease payments for use in excess of specified amounts.

Please see our factsheet for more details on the presentation and disclosure requirements for lessees and lessors under IFRS 16.

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