IFRS 16, the new lease standard, will impact businesses around the globe including those operating in Brazil. Leases will now be incorporated into balance sheets creating hassles for business.
International Financial Reporting Standard (IFRS) 16 is a new standard that focuses on the treatment of leases, which went into effect 1 January 2019. The objective of this standard is to ensure more transparent financial statements requiring analyses and new reporting for leases. This directive can have a big impact on accounting and finances of companies all around the world. Brazil is one of the countries affected by this change and if your business has lease assets and liabilities, you must be aware of the impact.
While IFRS 16 has been implemented in many jurisdictions around the world, there are some differences about who is affected by the new changes and the standards. In Brazil, IFRS 16 is only applicable to large corporations, with total assets more than R $ 240 million or gross annual revenue exceeding R $ 300 million. These changes are not yet mandatory for small and mid-sized companies. IFRS 16 will affect large businesses that use lease arrangements to access assets, including those involved in the retail, shipping, property and aviation and all other sectors.
Lessors should also remain alert as lessees may wish to renegotiate lease terms and structure future leases differently.
Lease accounting is changed through IFRS 16 and will alter the key financial metrics and key performance indicators (KPIs) as well as, introducing volatility in the balance sheet of companies. Prior to this law, leasing contracts were classified as rental expenses but now companies must classify these contracts as a depreciating asset in their accounting. The lessee must record all of its lease agreements in the balance sheet, with the only exclusions being transactions with short-term contracts and low value assets.
Impact of IFRS 16
The new law and system of reporting can majorly change the financial statements of these companies depending on how many leasing contracts they have. The lease payment expense will now be recognised as the lease liability and a depreciation expense for the right to use the asset. As a result, companies will have higher expenses at the beginning of the contract.
All companies in Brazil affected by IFRS 16 must check their leasing contracts and make sure that they have systems in place to collect the lease data and to perform the needed bookkeeping.
We can help
Staying compliant with IFRS 16 can be complex and companies must carefully implement policies for correct reporting of lease contract details. TMF Brazil can help you to comply with IFRS 16 and the new accounting standards, allowing you to focus on the day-to- day operations of your business. Our experts understand regulatory changes and how to stay ahead. Talk to us.
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