With the introduction of IFRS 16, the International Accounting
Standards Board (IASB) has - for the first time in more than 30
years - changed the rules on accounting for operating and finance
While it brings substantial and complicated changes, this new
accounting standard makes the accounting treatment of leasing more
consistent for the lessee.
According to IFRS 16, the lessee must recognise all assets and
liabilities relevant to the leasing transaction in the statement of
assets and liabilities (except for leases with a duration of 12
months or less and contracts for assets of low value). The new
standard is effective from 1 January 2019, however companies that
apply IFRS 15 may apply IFRS 16 before this date.
In international accounting standards, leases are also regulated
by IAS 17, pursuant to which all lessees must recognise finance
leasing according to the financial method (which requires the
assets and liabilities of a leasing contract to be recognised in
the statement and liabilities of the lessee). For operational
leases, however, IAS 17 requires application of the equity method
rather than the financial method.
With regard to national standards in Italy, this new rule is not
clearly mentioned in the regulations set forth by Legislative Decree 139/2015, which transposed
and implemented EU Directive 34/2013 relevant to financial
statements, consolidated financial statements and relevant reports
for corporations and other companies identified by the law. Section
2423-bis was reworded, eliminating the phrase "the items must
moreover be valued taking into account the objective function of
the assets and liabilities in question" and introducing number
1-bis which states that "the items are recognised and
presented by taking into account the substance of the transaction
The recognition and accounting treatment of the leasing contract
in accordance with section 2427, paragraph 1 no. 22, does not seem
to comply in full with the provisions of the amended section
2423-bis, (1-bis), in terms of prevalence of substance over
form. Consider for example the case of a financial leasing
contract where the doubt is whether it should only be
"presented" in the financial statements for its substance
or also "recognised" in terms of the substance of the
transaction rather than the form.
In addition, given that the provisions of section 2427 (22)
(Contents of the Explanatory Notes) have remained unchanged, the
regulations introduced by the new Legislative Decree 139/2015 are
also very unclear since they still appear to support the principle
of representing the leasing transaction in the financial statements
according to the equity method, thus supporting the prevalence of
"form" over "substance".
The white paper on the above legislative decree indeed clearly
states that financial statements items should not be valued
according to the "economic function of the asset or
liability", but the "substance of the relevant
transaction or contract". It also highlights the choice made
to keep the current structure (namely representation according to
the equity method) pending the introduction of the new
international accounting standard relevant to leasing
The legislator has delegated the Italian Accounting Body (OIC) to
take the necessary steps to change the national accounting
Given the introduction of the new accounting treatment rules
published by the IASB in accordance with IFRS 16, the OIC will most
likely also adapt the national accounting standards on leasing
The application of the financial method does not appear to raise
any tax issues, since it is recognised by the Italian tax
authorities, with the subsequent deductibility of
amortisation/depreciation and financial charges according to
Italian Income Tax Law and IRAP regulations.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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