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Reporting of lessors’ exposure to leasing activities has been enhanced

Last Updated Aug 2019

Johannesburg, 27 August 2019 – Many companies in South Africa enter into lease agreements in their capacity either as lessees (tenants) or lessors (landlords). These may include agreements for the right to use aircrafts, motor vehicles, equipment, retail space and other forms of assets.

“With the new leases accounting standard, IFRS 16 – Leases, which prescribes how companies should report its leasing activities on its financial statements, companies engaged in leasing activities need to have acquainted themselves on the new requirements, which came into effect from 1 January 2019,” says Bongeka Nodada, SAICA Project Director: Financial Reporting.

Nodada notes that: “The new leases standard is intended to assist users of financial statements (for example, investors, potential investors, financiers and creditors and any other readers of financial statements) to understand the effect that lease arrangements have on the financial performance (profitability) and financial position of a company. The objective of this standard is also to improve transparency when reporting on leasing activities.”

Nodada emphasises that, whilst the most significant overhaul of the leases standard affects lessees, lessors should also be assessing the impact of the standard before year-end to ensure that the required resources are available that will enable the company to comply with International Financial Reporting Standards (IFRS). These resources including financial and human resources may be required to ensure that the additional data required, both qualitative and quantitative data, for the financial statement disclosures, which was previously not required, is available by year-end. 

“Furthermore, the human resources that will ensure the changeover to the new leases standard is seamless may need to be considered by companies. This may include in addition to the new disclosure requirements, the consideration of whether any new contracts being entered into meet the new definition of a lease. They will also be required to consider the additional guidance provided on separating components within a contract between lease and non-lease components and the impact of this guidance on financial statements,” concludes Nodada.

IFRS 16 is applicable to companies which prepare financial statements in terms of IFRS and would include companies listed on the JSE and those required or opt-in in terms of the Companies Act 71 of 2008 to comply with IFRS and others required by legislation to comply with IFRS.
The Standard is effective for annual reporting periods commencing from 1 January 2019 and companies can elect to apply the standard earlier.

More information on IFRS 16 can be obtained from https://www.saica.co.za/Technical/FinancialReporting/TheNewLeasesStandard/tabid/3893/language/en-ZA/Default.aspx

About SAICA

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 46 000 members and associates who are chartered accountants [CAs(SA)], as well as AGAs(SA) and ATs(SA), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

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