IFRS 16 Leases: An Early Guide for Local Authority Practitioners

The Standard is expected to have a potentially significant practical and financial effect for local authorities, and it was considered that early notice of the technical requirements was advisable.

On 12 July 2019, CIPFA/LASAAC issued the proposed text for the adoption of IFRS 16 in the 2020/21 Code, as approved at that date. This publication provides guidance on the application of that text.

It will be of wide interest because of the prevalence of leasing in local government and the risk that the changes could have a budgetary impact if not managed effectively.

This guidance provides comprehensive coverage of the proposed requirements for lessees, including the accounting definition of a lease, recognition of assets and liabilities, measurement, derecognition and presentation, and disclosure in the financial statements. Although there have not been significant changes to the requirements for lessors, the guidance includes extensive commentary of this area.

The guidance covers in particular:

• identifying arrangements that meet the accounting definition of a lease
• determining the term of a lease where there are options to extend or terminate
• for lessees:
  • recognising right-of–use assets and lease liabilities, and their initial and subsequent measurement
  • reassessment of lease liabilities and treatment of lease modifications
• for lessors, distinguishing between finance and operating leases and accounting accordingly
• dealing with sale and leaseback transactions
• presenting lease transactions and balances in the financial statements
• disclosure of information about leases in the notes to the accounts
• harmonising with statutory accounting requirements
• the mechanics of making the transition in the 2020/21 financial statements (including the application of transitional provisions and the preparation of relevant disclosure notes).

Details of licensing arrangements for other categories of purchaser, which includes those organisations operating shared service arrangements, are available from CIPFA’s Publications Department.