PwC Global IFRS Lease Accounting

A new lease standard under construction

On 16 May 2013, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) issued a revised Exposure Draft on leases. This revised Exposure Draft proposed a new lessee and lessor accounting model that would significantly change the way companies account for leases today.

PwC has conducted a global lease capitalisation research to assess the impact of the proposed lessee accounting changes on the financial statements and key financial ratios and metrics of a sample of approximately 3,000 listed companies / lessees across a range of industries and locations. The study identifies the impact of capitalising the operating lease commitments disclosed in the published annual financial statements.

Highlights from the global lease capitalisation research include:

The average increase in entities’ interest-bearing debt would be around 58%; The average increase in leverage (interest-bearing debt / equity) would be around 13% and the average increase in EBITDA would be around 18% (assuming Type A leases). The range of potential impacts is wide, but 24% would experience an increase in debt of over 25%. The impact also differs significantly from industry to industry. Industries that will experience the most significant impact on reported financial ratios are likely to be:

  • Retail
  • Professional and other services
  • Transport and logistics
  • Telecoms
  • Healthcare
  • Real estate

Analysts, banks and rating agencies generally use a ‘rule of thumb’ to adjust the financial statements for the effects of off-balance sheet operating leases. This ‘rule of thumb’ might differ significantly from the actual impact of adopting the proposals in the Leases standard.

For further information about lease accounting please contact Jay Tahtah, Tel. +31 (0)88 792 39 45.