Fast track your leases implementation

Is your company still determining how to best complete your transition to the new lease accounting standard?

If so, time is running out as there are certain steps you need to take to be compliant. PwC has a tailored solution to help you jump-start your leases implementation quickly and efficiently, reducing the time needed for implementing the Leases standard and providing a platform for sustainable lease management and reporting going forward.

We can help you with

Establishing your company's lease inventory is a critical step in implementing the new lease accounting standard. Defining what is and isn't a lease can be complicated and involves significant judgement, especially around identifying embedded leases.

PwC's standardised assessment processes and tools will help you establish a lease inventory and enable the accounting required by the new standard. Our lease contract analyser (available as part of our Virtual Accounting Advisor platform) steps through the key elements of a contract to help you determine whether it contains a lease. It also provides the documentation required for your audit.

Lease measurement can be challenging as it requires your company to determine a number of fundamental factors such as lease term, cash flows and discount rate - all key to calculating a right of use asset and lease liability.

PwC has tools that can help you to quickly determine these complex factors. For example, our discount rate calculator (available as part of our Virtual Accounting Advisor platform) helps determine an indicative range for your discount rate based on objective, easily available information about your business.

As well as measuring leases at the transition date, you will need to embed new processes in your day to day activities and implement internal controls to ensure continued compliance with the standard. This will involve making accounting policy decisions, amending your current processes and procedures, and selecting appropriate tools - which may include a lease management software solution.

Processes - PwC’s smart questionnaire (available as part of our Virtual Accounting Advisor platform) can help you make the right accounting policy decisions. Our fast-track approach saves time by providing a limited-scope solution to meet your near-term reporting needs, while also providing the foundation for long-term, sustainable lease management and reporting.

Systems - You may decide there's value in assessing a system solution, but choosing the right system can be complex and time consuming. You'll need to assess system gaps and your company's business and IT requirements before selecting an appropriate software vendor. PwC can help you streamline the selection process so you can quickly decide which solution will meet your immediate needs while enabling long-term lease management. We can also help you determine how best to leverage the software platform features to improve business as usual processes.

Leases Disclosures - Analysis of June 2019 Annual Reports

We studied the most recent financial report disclosures of the ASX Top 100 companies to understand how the new leasing standard might impact the balance sheets of those companies.1

Companies disclosed various information about their readiness for the new standard and estimated impact of the adoption. We focussed on information that each company shared about their transition method and the estimated impact of the standard on the company's lease liabilities as a percentage of their total liabilities.

While we were rigorous in ensuring we took a consistent approach to each company’s disclosures, judgement was required when interpreting certain disclosures.

We studied ASX Top 100 companies as of 30 September 2019. Of the 100 companies we examined, 69 had a financial year period ended in June 2019. All of these companies had published their financial reports and were included in our sample.

What we found

Liabilities on balance sheet

The average estimated increase in total liabilities for companies on adopting the new leases standard was 18%.

Analysis of June 2019 Annual Reports - Quote

Debt is a key measure that is used in a number of calculations that can have financial implications on a company, including banking covenants and credit rating analysis. While the new leasing standard shouldn’t change the credit worthiness of a company, the way in which it is assessed will necessarily change. Companies will need to ensure that they have carefully considered what the change in standard will mean for their business and consider how lenders will use this new information to assess the indebtedness of a company once the new leasing standard is applied.

Have you talked to your financial institution?
Transition method

There are three transition methods for the new leasing standard: full retrospective, modified retrospective (restating ROU assets) and modified retrospective (simplified approach). Each of these methods will have different impact on a company's profit and loss statement. As might be expected given the significant effort involved, far fewer companies (n=7) adopted the full retrospective method than either of the other methods. Most companies (n=36) used the modified retrospective approach involving restating ROU assets, possibly because there's a profit and loss benefit associated with having a lower depreciation figure (which would be expected with this method). Despite the modified retrospective (simplified approach) being the simplest transition method, we found fewer companies (n=26) used this method than the modified retrospective (restating ROU assets) approach.

Analysis of June 2019 Annual Reports - Pie Graph

Contact us

Sean Rugers

Partner, Sydney, PwC Australia

Tel: +61 421 057 493

Ian Campbell

Partner, PwC Australia

Tel: +61 8 9238 3276

Katelyn Bonato

Director, PwC Australia

Tel: +61 3 8603 0868

Michael Woolrich

Director, PwC Australia

Tel: +61 3 8603 0851

Anthony Brittain

Director, PwC Australia

Tel: +61 7 3257 5794

Muhammad Nabeel

Senior Manager, PwC Australia

Tel: +61 (2) 8266 6240

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