A study on the impact of lease capitalisation

IFRS 16: The news leases standard

Assessment of the impact of the new leases standard on the financial statements, key financial ratios and performance measures on a sample of 3,199 listed IFRS reporting organisations across a range of industries and countries (exl US)

The study identifies the minimum impact of capitalising the operating lease commitments as disclosed in the published financial statements for 2014. In view of organisations assessment of the lease term under the new standard, the inclusion of amongst others in-substance fixed payments and variable payments linked to an index or rate, the eventual impact may be much greater. Furthermore, the study takes no account of transitional reliefs that are available upon adoption of the new leases standard on 1 January 2019.

Highlights from the study include:

  • The median increase in entities’ debt loads would be around 22%
  • The median increase in Earnings Before Interest, Tax,
  • Depreciation and Amortisation (‘EBITDA’) would be around 13%
  • The median leverage (bearing debt/EBITDA) increases from 2,03 to 2,14
  • The range of potential impacts is wide, but 53% of entities would experience an increase in debt of over 25%

The impact of the new standard differs significantly between industries. The industries that are likely to experience the most significant impact on reported financial ratios and performance measures are:

  • Retail
  • Airlines
  • Professional services
  • Health Care
  • Textile and apparel
  • Wholesale

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