Lease
Lease has to do with Finance ….
….. but as much with tax and legal aspects.
And Finance is not just bookkeeping, but also:
liquidity management, debt monitoring and collection, and planning …
… and the link to the IT systems and IT staff, making everything working operationally.
Lease also is organising the financing (funding) needs …
… and the effects of lease transactions for their presentation on the balance sheet, in the profit- and loss statement and effects on the finance ratios.
Lease, moreover, is the capability of judging and managing the residual values at the end of the lease period of operating leases.
Within Tweuus lease expertise is available to address all of the above issues, in combination, at both a strategic, tactical/operational or execution level.
Tweuus is regularly giving presentations about the changes to the lease regulations. High level for directors and management, providing a bird’s eye view or in detail with elaborated cases.
For instance examples that, together with the Sales department of a lessor company, are discussed with lessor’s customer(s) = lessees.
Tweuus is also giving presentations for lessees directly.
Tweuus assists in a phased plan, plotting actions required in the trajectory for change from start to finish:
- contribute to a vision on the lease proposition (lessor) or lease policy (lessee),
- set up of a strategic plan,
- liaise with IT and Finance staff what to do and how to tackle it, and
- monitor time planning and execution.
And Marketing? Of course, just think of the correct information for your internal and external websites.
Recent developments:
Sustainable and Circular. Environmental, Social and Governance Risks. These are the terms of the post-Covid-19 era.
Impact on society will be diverse. For the leasing industry, there will be a further shift towards use rather than ownership. At the same time, the Basel IV concepts to be discussed in autumn 2021, will have an upward cost impact and reduced appetite from banks for Operating leases.
In concrete terms: operating leases are becoming more difficult to finance or more expensive, so a financial lease will be chosen more often, whether or not ‘dressed up’ with various services. Such a finance lease as described above may have a bullit payment at the end, comparable to the residual value of an operating lease. The difference will be that with a finance lease, the lessee is obliged to take over the leased object and therefore has to pay the entire investment, whereas with an operating lease, the lessee only has to pay the financing costs of the residual value part (as user/beneficiary of the object during the lease term) and not the residual value amount as well.
Tweuus is responding to these developments with the following products:
Note: English versions are not expected before Q4 2021; therefore reference is made to the Dutch text- sorry for that -.
Tweuus Lease Administration System: a complete system for outsourcing the administration of lease and rental transactions, suitable for lessee, lessor, supplier and manufacturer.
Participation Residual Value (RV) or for details see the pages Participation RV and Frequently Asked Questions about Participation RV.
Earlier products:
A typical example of how Tweuus helps: The in-house developed Lease Transition module and before, in 2016, the ‘larger’ Lease Reporting Model – LRM.
The module is intended to compare the various options and see how to migrate to IFRS 16. The larger model allows, per individual lease, for the breakdown in the interest- and redemption components on the basis of both (current) IAS 17 as well as (new) IFRS 16, per month and with annual aggregates. Therewith, also an analysis in detail, if required, of the differences in outcome can be made. A number of restrictions apply, however: the model caters for a 25 years period for about 2,000 contracts or a maximum of 10 years for as much as 10,000 contracts.
Interested ? Use the contact form or make an appointment.
Experts – non-lease experts too –
Tweuus supports companies in their quest for experts with financial skills, especially, but not limited to lease expertise. For dedicated staff, visit the web page Experts.
IAS 17 en IFRS 16 Leases
For articles on IFRS 16 Leases, please visit the web shop.
IFRS 16 Leases was presented in its final form on 13 January 20165, after a long and troublesome process.
Below, the highlights of IFRS 16 are indicated:
Conforming to IFRS 16 is due for companies which apply IFRS guidelines on 1 January 2019. It includes at least all listed companies on stock exchanges — and their consolidated subsidiaries –, banks and insurance companies and those companies voluntarily applying IFRS guidelines for annual reporting.
Many elements of the current accounting guidelines for lease transactions in Dutch GAAP – IAS 17 remain in force. Example is the topic ‘scope’: the terrain to which the lease guidelines apply.
For lessees (the customers of the leasing companies) that are using the IFRS reporting base, it is stipulated in IFRS 16, that all leases are to be treated equally in reporting, with some exemptions allowed (see below).
Certain transition arrangements are applicable when moving from IAS 17 (Leases old) to IFRS 16 (Leases new). Here too, transition rules apply with choices to be made. It is important to realize that certain of the choices can best be made well before 2019.
For lessors, the distinction between finance and operating leases remains. In order to make the distinction, the same criteria and indicators apply which now are in force for lessees when deciding whether a lease is a financial or an operating lease.
Exemptions to the main rules in IFRS 16:
Leased assets with a tenor of maximum 12 months do not require to be reported on balance sheet. The choice can be made by group of assets (with the same breakdown as used in the notes to the fixed assets now). Leases expiring during 2019 (the transition year) may be treated as leases shorter than 12 months.
The choice for excluding leases of up to 12 months from the balance sheet is an accounting policy decision, will therefore not be revised frequently and may already be taken today. The same applies to the second exemption and in this case, it even has more financial relevance.
Leased assets of low value (to be decided by individual transaction) may be excluded from the balance sheet presentation. The (lease) costs of these ‘small’ leases, of course, are included in the profit & loss accounts and, under IFRS 16, are required to be disclosed, too.
It should be noted that IFRS 16 allows to making the choice for application of the exemption per contract, whereas logic has it that for low value assets, companies apply decisions by group, rather than for individual transactions. Consider e.g. office equipment, including furniture, tablets, etc.
Relevance: as all leases are to be treated equally by the lessee, this exemption applies to all leases with low value assets that run beyond 2019. Thus, all current leases, but certainly all leases to be concluded in the coming two years.
Initial value criterion for assets with low value is the countervalue of US $ 5,000 (as per Jan. 2016). See also the article about indexing: Indexing low value assets.
Questions about IFRS 16 after reading the above?
Call 0031 6 5498 3095, use the contact form or make an appointment.
