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...