4/2/2019 New Lease Accounting Standard Now in Effect - The Economic Times - Delhi, 4/2/2019

New Lease Accounting Standard Now in

Effect
ICAI says it will improve quality of financial info
Our Bureau

New Delhi:

The new accounting standard for leases, IND AS 116, came into effect on Monday, the Institute of
Chartered Accountants of India (ICAI) said, adding it will increase visibility of companies’ lease
commitments and thereby improve the quality of financial information.

The new standard eliminates the classification of leases as operating or finance leases for lessees and
changes rules for recognition of gains/losses for sale and lease back transactions. “It will bring substantial
visibility of companies lease commitments, financing and operating model and, above all, better reflect
economic reality,” said ICAI president P Prafulla Chhajed.

Under the new standard, most leases will have to be recognised on the lessee balance sheet as a lease
liability and a corresponding “right-of-use” on the asset side. Rules, however, do offer exemptions for low-
value asset and short-term leases. “Exemptions given for short-term leases and low value asset leases are
expected to provide substantial relief from operational complexities to many companies," said Chhajed.

The aviation industry is likely to see a significant impact of these rules as companies commonly lease
aircraft instead of purchasing them. The balance sheets of such companies are likely to grow as leases,
which were previously classified as operating leases, will be recognised on the balance sheet.

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