Impact of AASB 16 on ANZ Bank: Lease Accounting Changes

Running head: ADVANCED ISSUED IN ACCOUNTING
Advanced Issued in Accounting
Name of the Student
Name of the University
Author’s Note

1ADVANCED ISSUED IN ACCOUNTING
Executive Summary
The findings of the essay indicates towards the fact that the main reason for the adoption of the new lease standard
of IASB 16 Leases is to diminish the inconsistency in the lease standard of AASB 117 Leases where the lessees are
not required to report their large operating lease assets and laities in the balance sheet. The findings also show that
the balance sheet and income statement of the companies will be large affected with this single lease model due to
the reporting of large lease liabilities in the balance sheet. The banking sector of Australia will also be affected with
the implementation of IFRS 16.

2ADVANCED ISSUED IN ACCOUNTING
Introduction
The dependency of business organizations on different sources of financing can be seen and Lease is
considered as one of the most popular sources of financing for the companies. Businesses use lease for both
medium and long-term financing needs. Lease can be considered as a special agreement where a party receives the
right for using a particular asset from another party on the basis of rental payments (Munene, 2014). Lease can be of
two types; they are Operating lease and Finance lease. Formerly, companies were required to follow the standards of
AASB 117 Leases for lease accounting, but from January 1, 2019, they are required to follow the new lease standard
that is AASB 16 Lease (IFRS 16 Leases). The aim of this essay is to highlight the major differences between AASB
117 and AASB 16 along with their impact on ANZ Bank.
Lease Arrangements
There are two types of leases under the standard of AASB 117 that are operating lease and finance lease.
As per this standard, the obligation is on the companies to report the financial lease assets and liabilities in the
company’s balance sheet. At the same time, companies are needed to ensure the disclosure of operating lease
information (Fitó, Moya & Orgaz, 2013). In case of finance lease, lessees hold the ownership of the lease assets at
the end of the lease term; in case of operating leases, the lessors hold the asset ownership for the whole lease term
(Morrell, 2013). Under AASB 117, there is not any obligation on the lessees to report the huge amount of operating
lease assets and liabilities in the balance sheet and AASB 16 has been introduces to remove this inconsistency
(aasb.gov.au, 2019).
The introduction of AASB 16 has brought certain major changes in lease accounting when compared to the
existing lease standards that is AASB 117. AASB 16 demands the commitment from the lessees to adopt a single
lease accounting model that diminishes the differentiation between operating and finance lease as the companies will
be needed to enlist all lease contracts under leases. Under AASB 16, the obligation is on the lessees to report the
present value of right-of-use lease assets and lease liabilities in their balance sheets, but short-term leases are
exempted from this regulation. Companies will be needed to treat the right-of-use assets as the normal non-current
assets where they will be depreciated as well as tested for impairment in accordance with the standard s of AASB
116 Property, Plant and Equipment and AASB 136 Impairment of Assets respectively (aasb.gov.au, 2019).
In addition, companies need to treat the inabilities as normal liabilities where they will recognize their
interest in accordance with AASB 140 Investment Property. Ensuring strict compliance with the disclosure objective
of AASB 16 is a major requirement of this new standard (aasb.gov.au, 2019). In addition, correct reporting of right-
of-use assets is needed from the companies where it is needed for them to report depreciation expenses and interest
associated with them in the income statement. Apart from this, companies are needed to ensure certain classification
related to lease liabilities and right-of-use assts in the cash flow statement like cash payment for lease liabilities,
payments for short-term leases and others. In this context, it needs to be mentioned that the aim of the introduction