Recent changes to the rules around the way businesses lease products could impact your small or medium business. The new ruling, known as IFRS16, is designed to increase balance sheet transparency by more accurately reflecting the use of leases and asset finance and comes into effect January 2019. Is your business ready?
In Kochie's Business Builders, Anthony Roberts explains what IFRS16 is, what it might mean for you, and how you can prepare.
For the purposes of accounting standards, leases are currently categorised as either finance or operating leases – but from January of next year, they won't be. Instead, they will be put to a “right to use” test that looks at whether the business has the right to use an asset.
This means that most leases will now be on-balance sheet, with flow-on effects on several commonly-used financial metrics. Gearing ratios, current ratios, asset turnover, interest cost, EBIT, EBITDA, and even operating profit and net income, will all be affected by the change.
Like anything, the earlier you start preparing, the better prepared you will be. To read the full article, please visit Kochie's Business Builders here.