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Point of view — Power and Utilities — implications of the new leasing standard

Published on: 15 Mar 2016

IFRS 16 Leases has been published and is effective for periods beginning on or after 1 January 2019 (subject to EU endorsement).  This publication highlights issues from the new leasing standard that will be of interest to those in the Power and Utilities sector.

  • The distinction between operating and finance leases will no longer apply for lessees, and a right-of-use asset will be recognised on balance sheet together with a lease liability for all but the most insignificant lease arrangements.
  • Changes to the definition of a lease means arrangements previously outside the scope of lease accounting may now be captured, while others currently in scope may not meet the revised definition.
  • EBITDA will generally increase as an operating lease expense is replaced by depreciation and interest, but gearing will also increase, impacting entities’ capacity to take on additional debt.
  • For lessors, the requirements remain largely unchanged, however as a result of the changes impacting lessees, lessors may see a change in the length and terms of arrangements lessees are willing to enter into.

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