FRC urges transparency in lease accounting disclosures

The International Accounting Standards Board issued its new lease accounting standard in the hope of providing more transparency to investors regarding companies’ obligations.

Now the UK Financial Reporting Council (FRC) is urging companies to provide more information on the effects of the new standard, IFRS 16, Leases. The standard took effect 1 January 2019.

The FRC reviewed the interim reports of 20 companies that applied IFRS 16 for the first time, and it discovered examples of best practice for disclosures.

The best disclosures related to the effects of the new standard typically were tailored to the company’s circumstances and provided more than the minimum requirements, according to the FRC.

Information in annual reports and accounts to help stakeholders understand the effects of the new standard, according to the FRC, should include:

• Information about key accounting judgements made; for example, on the identification of leases or on assessing their length.
• Clear explanations of the specific transition choices made.
• A detailed reconciliation between the operating lease commitment under the previous standard and the new lease liability, with clear explanations for reconciling items.
• Where companies use alternative performance measures to help users understand the effect, these measures should be properly labelled, reconciled, and explained and not be given more prominence than IFRS measures.

The full review is posted on the FRC’s website.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is FM magazine’s editorial director.