GCC businesses should start preparing now for IFRS 16: ICAEW

Business Reporter -

MUSCAT, oct 18 -

GCC businesses need to start preparing for International Financial Reporting Standards (IFRS) 16 now or risk non-compliance when the new financial instruments standard is introduced on January 1, 2019, according to accountancy and finance body ICAEW.

While the new leasing standard — jointly initiated by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) — will be good news for business in the long term, there are significant reporting requirements that businesses need to consider leading up to it.

This was the narrative of a recent regional panel at the joint IFRS Foundation and ICAEW global virtual IFRS conference on the implementation of IFRS 16 Leases standard. Moderated by Yusuf Hassan, Partner and Head of Accounting Advisory Services, KPMG, the session included a panel discussion with industry experts Anthony O’Sullivan, Assurance Partner, EY; Srinath Rajanna, Director —Group Accounting & Reporting, DP World; Arvind Baghel, Head of Prudential Supervision, Dubai Financial Services Authority; and Blaise Jenner, Partner, PwC.

Panellists agreed that IFRS 16 is a significant game changer in financial reporting and affects nearly all industries.

It removes the much-maligned distinction between operating and finance leases, and results in all leases being recognised as finance leases. Panellists explained that in a region where almost every entity is involved in some sort of leasing, the financial impacts of such a change cannot be understated. Not only does it bring leases onto balance sheets, but there will also be massive changes to profitability, ratios like debt to equity ratios, interest cover and retained earnings.

Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia, said: “IFRS 16 is a new era of lease accounting. First time application of the new standard is likely to be challenging for many businesses and early engagement to determine the most appropriate option for the business circumstances is critical. The majority of businesses in the region are behind the curve and they must speed up their efforts and get ready for IFRS 16.”