The Institute of Chartered Accountants of Sri Lanka (CASL) has published SLFRS 16 Leases with an effective date of 1 January 2019. The new standard requires lessees to recognise most leases on their balance sheets.
The new standard will mainly affect all commonly used financial ratios and performance indicators, such as gearing, current ratio, asset turnover, interest coverage, operating profit, net profit, earnings per share return on equity and operating cash flows. These changes may affect credit agreements, credit ratings and borrowing costs which may lead to changes in behavior. These impacts may force many organizations to reconsider certain ‘lease versus buy’ decisions.
The following points are the key facts of the new leases standard:
- Lessees will have a single accounting model for all leases, with two exemptions (low value assets and short term leases).
- Lessor accounting is substantially unchanged.
- There will be additional disclosure requirements.
- The new standard will be effective from 1 January 2019.
