The lease accounting standard has been a long time coming.
In need of rewriting for 30 years, promises were made to find a new standard in 2006.
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The fact that its announcement and its implementation in 2019 are so far apart relate to the softly-softly approach of the IASB, and the significant effect it will have on its members.
Yet still the anxiety that it caused, due to the suggestion of change in the status quo, was part of the reason it was delayed for so long.
The consultations have been vociferous and at times threatened to derail a decision, and the announcement and landing date had become a bit of a market private joke.
But on its delivery, despite the long consultation, there were some threats to business that could unravel in the future.
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By GlobalData"My real concern here is that relative to other forms of borrowing, the standard will impose invisible administration transaction costs upon lessees, particularly lessees with large leasing estates which may have a depressant impact on their desire to lease," says George Ashworth, managing director of Virgin Money SME lending.
"I can see the new standard in the future having a depressant effect particularly in the area of soft assets and office-based business machines," he added.
With regards to internal organisation, and process arrangement, the buzzword after the announcement seems to be preparation: of staff, systems, processes and back office.
"Will lessees have the relevant information to hand?" says Grant Thornton partner Tarun Mistry. "Will they use task forces to get this information? The actual data management is also complicated. The mission will be getting your systems and processes ready and working with a provider that can capture the data, and provide the accounting entries.
"As a result of the changes in lease accounting the trading and balance sheet numbers of the businesses impacted will be affected. This will have a direct impact on their banking covenants which will need to be amended to reflect the new accounting treatment."
There could be ramifications for the new private equity owners in the market.
"The variety of standards will clearly add complexity to the users of these accounts including the stakeholders such as banks and investors," adds Mistry.
The accounting standard regulation is not ratified by the EU or combined with GAAP in the US. To have one commercial set of users reporting to the IFRS standard, and some without, seems a marketplace conflict.
There could be regulation ‘creep’, where the standard inspires more regulation.
Especially if the market responds to the split standard by demanding greater transparency.
Businesses need to make sure they raise awareness among their staff, and adapt their systems suitably, so in the short term there’s no disruption to business processes, adds CHP Consulting director Ralph Neuff.
"For lessors, the most notable changes are the inclusion of variable rentals linked to a rate in the definition of the minimum lease payments (currently recognised under IAS 17 as income in the periods in which they occur), and changes to the disclosures – in particular to provide additional information about the management of residual value risk," he says.
"Lessors should also be aware that divergence will remain between IFRS and US GAAP with regard to the treatment of sales profit on direct finance leases."
Lessee accounting is the main focus of change, adds Neuff, so client focus is key – especially those who have no existing finance leases but do have large portfolios of operating leases, such as a vehicle fleet.
"This assistance might come in the form of providing reports of their current lease commitments, and could include information on the breakdown of a contract between lease and service components, or the discount rate (where these do not constitute commercially sensitive information)," says Neuff.
"Those lessors who act as intermediate lessor will certainly need to update their lease administration systems to incorporate the new lessee accounting rules."
