Will IFRS 16 change the lease decision?

Posted by Thelma Welgemoed on Aug 16, 2018 9:35:39 AM
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Will the change in accounting under IFRS 16 change the way management view the decision to lease or buy and is there any value in still leasing assets?

In the past, people would save for what they wanted and purchase the item outright.  These days we live in a rapidly changing world, and except for saving for a deposit, people will want to acquire access to assets sooner rather than later.  For technology-based assets, with the constant rate of change, the option to lease rather than buy remains attractive.

Leasing assets solves several practical problems that outright ownership creates. 5 Reasons why leasing is better than buying are:

  • Leasing isn’t more expensive
  • Flexibility with easy upgrades
  • Few responsibilities of ownership
  • Leasing builds business relationships
  • There is plenty of support

Leasing assets these days covers a surprising wide range of products.  Leasing remains popular with technology products due to the rapidly changing technology landscape, however is not limited to these types of products alone. Businesses can now lease anything from Art to barges to laundry equipment and ambulances.  Whatever people want and cannot afford to buy, or choose not to buy, can often be available on lease.

Initially it was thought that the fact the operating leases will now be on balance sheet would alter or wane Businesses appetite to consider leasing as an option.  The fundamentals driving the lease vs buy decision have remained the same and are not being impacted with the changing accounting standards.  Our current engagement with clients has shown that leasing remains a compelling solution when accessing equipment.

 

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Topics: IFRS 16, Leases, accounting standard, Reporting changes