IFRS 16 Will Cause Debt to Balloon. In Some Cases, It',ll Be Ugly!
Operating leases are actually very much similar to debt. They represent money corporates are obliged to cough up in future to rent things like heavy equipment, planes, ships and retail floor space. But right now you won't find them on the balance sheet. They are right now buried in the notes to financial statements
From 2019, this will change.
New accounting rules called IFRS 16 will prompt corporates to include lease commitments as part of their stated liability and assets. Heavy lease users in the oil & gas, energy, retail, telecoms and airline sectors will probably be most affected.
Accounting reform can also affect corporate behavior.
It's conceivable therefore that IFRS 16 will affect corporate decisions on whether to rent or purchase an asset.
Darren Leiser will be elaborating on this further in his upcoming event on IFRS for the Oil & Gas Industry. The event is scheduled at The Hilton Paddington in London
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