HA3011 Advanced Financial Accounting Assignment: AASB 16 Lease Report

This report provides an in-depth analysis of AASB 16, the new accounting standard for leases, using OOH Limited's annual report as a case study. The report begins by identifying and describing the accounting concepts used by the company, followed by a detailed explanation of the changes incorporated in AASB 16, highlighting the differences between the new standard and the previous IAS 17. The analysis includes practical examples from OOH Limited's financial statements to illustrate the impact of the new standard on financial reporting, including the recognition of lease assets and liabilities, and the effect on key financial ratios like EBIT and EBITDA. Furthermore, the report summarizes the key disclosures made by OOH Limited regarding its accounting for leases, including the transitional provisions and the impact of transitioning from AASB 117 to AASB 16. It also examines the company's approach to lease definition, accounting policies, and measurement, providing a comprehensive overview of the practical implications of the new standard. The report concludes by offering insights into the implications of the changes in accounting requirements for both lessees and lessors.

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Contents
Introduction:...............................................................................................................................3
Accounting concepts:.................................................................................................................3
New Accounting Standard for AASB 16:..................................................................................6
Disclosures:...............................................................................................................................8
Conclusion:...............................................................................................................................9
References:..........................................................................................................................10

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Introduction:
The company undertaken for review is OOH Limited. The company is an out of home media
company which provides the outdoor media, production and the advertising services in the
country of Australia and New Zealand. The company functions in four division which include
road, retail fly and place. The road division offers a great deal of the format roadside
billboards with an approximate of 3000 regional and 1000 metropolitan sites.
Accounting concepts:
The financials prepared by the company are in line with the rules and regulations of the
AASB and also in line with the provisions of the Corporations Act, 2001. These financial are
also in line with the IFRS. There are full disclosure notes that are prepared for the purposes
explaining the events and the transactions that would help in gaining an insight into the
management and the working of the company and also help in understanding the performance
of the group as a whole. These financials of the company have been duly approved by the
Board of directors.
With regard to the basis of preparation of the financials, the financial have been prepared
using the cortical cost basis except form the following items:
(a) Derivative financial instruments and the pit option have been reported at their
respective fair values.
With regard to the currency, the company uses Australian dollars. The company is the one
which is referred to as in the ASIC corporations instruments and as per that, all of the
financials of the company have been prepared in the Australian dollars.
While preparing the financials of the company, the company has made a use of judgements,
estimates and assumptions that would affect the accounting policies of the group along with
the reported assets, liabilities, incomes and the amounts of the expenses. The actual results
are very different from the estimated results. These estimates and the underlying assumptions
are reviewed on a regular basis. Any amounts of revisions to these estimates are done for the
later years and not to the previous years. These are the significant judgments that would
affect the application of the accounting policies on the company and there are some sources
of estimation uncertainty as well.
The following are the major accounting policies that affects the financials contained in the
financial report of the company:

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 Business combinations
 Onerous lease provisions
 Impairment of the non-current assets.
There are various assumptions and estimation uncertainties contained in the financials of the
company. There is some information contained about the assumptions and the estimation of
the uncertainties that have some major impact over the financials of the company and that are
exposed to a major amount of materiality within the year which ends on December 31, 2019.
With regard to the business combinations, the fair values are measured on the provisional
basis and then there is a test of impairment which includes the key assumption which
underlies the recoverable amounts.
In respect of the measurement of the fair vales, the accounting policies of the group along
with its disclosures requires the measurement of the fair values for both the financial and the
no financial assets along with the liabilities. For the purposes of the measurement of the fair
values, the group has some set of controls. This includes the financial team which has the
overall responsibility of overseeing all of the major fair value measurement which includes
the Level 3 fair values and these reports directly to the chief Financial Officer. The team
reviews these unobservable inputs along with the valuation adjustment on a regular basis. In
case, the third party information is required for the purposes of ascertaining these values, then
the same shall be done and shall be assessed by the finance team on the basis of the evidence
obtained from the third parties. This helps in the support of the valuations so as to ensure that
all of the requirements as have been laid down under IFRS have bene duly complied with.
This includes the level of the fair value hierarchy in which such of the valuation will have to
be classified. There are some of the valuation issues which are reported to the audit, risk and
the compliance committee. The company uses the observable data when it comes to the
measurement of the fair values of the assets or the liabilities. The fair values of the assets and
the liabilities are categorised into different levels of fair values and the same is based upon
the inputs that are used when adopting the different techniques of valuation.
Level 1 of this hierarchy includes the use of the quoted or the unadjusted market prices for all
of the assets and the liabilities that are similar to the ones in the balance sheet of the
company.

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Level 2 of this hierarchy includes the quoted prices other than the ones included above for the
assets and the liabilities. These prices are directly related with the prices and he indirectly
connected with the derived prices.
Level 3 of this hierarchy includes the inputs of the assets and the liabilities that are based
upon the observable data in the market. In case, the fair market values of the assets or the
liabilities are ascertained on the basis of the different levels of the fair value hierarchy, then
the measurement shall also be categorised on the similar level as the lowest level of an inputs
which is important in its entirety.
The group also recognises the transfers between the different levels of the fair value hierarchy
as at the end of the period of reporting during which the change has taken place. The
following is the information about the assumptions that have been used while measuring the
fair values of the assets and the liabilities:
 Financial risk management
 Changes in the accounting policies. All of the accounting policies have been adopted
consistently in each year. These are in line with the new accounting standards of
AASB 39 and AASB 15. The group has successfully applied the new rules and
regulations and some of the amended accounting standards and the interpretations that
have been issues by the AASB which are compulsory to be reported in the financials
(Annualreports.com, 2019).
New Accounting Standard for AASB 16:
January 2016 marked the issue of IFRS 16 leases which started the new ear of the lease
accounting. Under the previous provisions pertaining to lease, a lessee had to make the
distinction between the finance lease which was to be disclosed in the balance sheet and an
operating lease which was to be disclosed off the balance sheet (blog.innervision.co.uk,
2019). The new model lays down the requirement to recognise the lease contracts on the
balance sheet. The only exemption that exists under these requirements are for the leases that
are for short term in nature and the assets that are of a lower value. For the lessees that have
been entered into contracts would be shown as the operating leases under the requirements of
IAS 17. This change in the accounting requirements could have a major impact over the final
accounts. The new standard would have some bearing on the balance sheet and on the ratios

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that are connected with the balance sheet or the ones that are calculated using the figures
from the balance sheet (Www3.greatamerica.com, 2019). The companies would now have to
recognise and report the interest expense on the liability of lease due to the obligation to
make the payments of lease and the depreciation on the right of use of an asset. This would
reflect the right to use the leased asset. Hence, under the new lease accounting, the amount of
the lease will have to be reported in the final accounts as at the beginning of the period but
then this amount shall be higher calculated under IAS 17. Another change due to these
changes would be in the presentation of the EBIT and the EBITDA which would be higher in
the case of the companies that have some material operating leases. There shall be a change
in the cash flow statement as well (DeStefano, 2019).The lease payments that were being
considered as the operating lease would not be considered as the same in the statement of
cash flows. Only the part which indicates the interest on the liability of lease would be shown
as a cash flow from the operating cash flows but then again, this depends upon the accounting
policy which has been adopted by the company in relation with the payment of interests. The
amount of the cash paid towards the principal portion of the lease liability would be reported
under the cash outflow from financing activities. The cash outflow in respect of the short
term leases and the leases with the low value assets would not be reported while measuring
the liability of lease. This will remain present within the operating activities. Even when the
accounting remains to be the same for the lessor, the changes have to be made for the lessees.
The lessors must be aware about the new guidance on the definition of lease, subleases and
the accounting for sale and the lease back transactions. These changes in the accounting for
lessee would have an impact over the lessors since the requirements and the behaviours
change for lessors when they get into negotiation with the customers (Pwc.com, 2019).
For the lessees and the lessors, there are some of the advanced disclosures. The lease
accounting is the joint project of IASB and the US. Earlier, they were wanting to develop a
converged standard but they ended up defining lease and recognise all of the leases on the
balance sheet of the lessee. These differences would only increase (Liz Farr, 2019).
Disclosures:
The annual report of the company states that the AASB 16 is applicable from January 1,
2019. But an early adoption of the same is allowed but the group did not intend to adopt the
same. As far as the definition of lease is concerned, it is determine if the contract or the
arrangement entered into constitutes to lease as at the time of inception. This is the judgement
which is required to be made while determining and while following the criteria which is to

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be taken into consideration. The points like the receipt of the economic benefits derived from
the arrangement, the ability to direct the manner in which this asset is utilised, the passing of
the control to the group, in lieu of the payment of the consideration are considered. With
regard to the accounting policies, this new standard seeks for the following of one single
accounting model. The new model requires the recognising of the right of use of the asset
along with any corresponding liability for the leases that come under the purview of the
definition of finance lease. The group has considered all of the provisions of the new
accounting standard and is of the view that there are no adjustments to be required upon the
initial transition. From January 1, 2019, t group shall require the disclosure of the right of use
of an assets and the liability of leases. Further an amount of depreciation will also have to be
reported in the statement of profit or loss and the other comprehensive income. The statement
of cash flows would show the cash to be separated onto the principal portion which is
indicated in the financing activities, the amount of the interest portion shall be presented
within the operating leases. With regard to measurement, the liability of lease would be
reported at the present value of all of the minimum lease payments which have the remaining
useful lives with the discount rate being the incremental borrowing rate which is applicable to
the lease. This boring rate would be used when there is no other implicit rate within the lease.
Where the leas consist of an extension option and the group knows that this option shall be
exercised, then the lease liability calculated at the present values of all of the minimum lease
rentals using the relevant discount rate during the period shall be measured. At present, there
is an option that the lease shall be extendable when it meets the criteria of reasonably
certainty.
There is an inclusion of various lease payments that depends upon the index or the rate and
this excludes various variable lease payments that are capable of being determined upon the
initial measurement. As the lessee, the right of use of asset is measurable keeping in mind the
lease liability. This is adjusted for the initial direct costs along with the other lease payments
made before the date of the lease commenced and would be reduced by the incentives that
have been received. The value of the right of use of assets shall not be adjusted for the
projected costs of dismantling and for the restoration of the assets. These are the costs that are
accounted for within the making good provisions and is done as per the requirements of
AASB 137. The amount of the lease shall be under some of the cases wherein there is a
change in the term of the lease. This is t value that would be re-measured and the lease
liability shall be offset by the corresponding adjustment to the right to use asset.

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Conclusion:
The accounting departments would be affected by the requirements of the new standard. This
is mainly during the first year if reporting for the company. The companies would be required
to know and understand the way in which the leasing communicates with the company and
there is an immense amount information which is required to be gathered by the company
and they will also be required to know the effect of these changes on their financial reporting.
With regard to IAS 17, the number if the operating leases in the companies is comparatively
higher than the volume of the operating lease and the accounting requirements of operating
leases is more complex when compared with the accounting treatment of finance leases.
Under IFRS 16, all the leases shall be rated as being the same in terms of accounting. The
accounting departments under this standard would have more number of calculations with
regard to amortisation to do.
In respect of the operating leases, the accountants are exposed to a lessee challenge since
these do not have to be reported in the balance sheet. The main difference between the two is
for the internal accountants wherein the company does not have many finance leases.
There is an increased interaction required between the accountants and other such
departments such as leasing. There is a greater amount of attention required for the smaller
companies especially when it comes to application of IFRS 15 and IFRS 9.
In the nutshell, the adoption of the new accounting standard could include an increased work
for the accountants. But this would affect the balance sheet and the statement of profit and
loss and other comprehensive income.
References:
Accounting Today. (2019). Separating the old from the new in the leases standard for
lessees. [online] Available at: https://www.accountingtoday.com/opinion/separating-old-
from-new-in-the-leases-standard-for-lessees [Accessed 24 Sep. 2019].
Annualreports.com. (2019). Annual report 2018. [online] Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_OML_2018.pdf
[Accessed 24 Sep. 2019].
Annualreports.com. (2019). oOh!Media Ltd - AnnualReports.com. [online] Available at:
http://www.annualreports.com/Company/oOhMedia-Ltd [Accessed 24 Sep. 2019].

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Firm of the Future. (2019). Changes to Operating Leases Under the New Lease Accounting
Standards. [online] Available at: https://www.firmofthefuture.com/content/changes-to-
operating-leases-under-the-new-lease-accounting-standards/ [Accessed 24 Sep. 2019].
Hendrie, R. (2019). The difference between IAS 17 and IFRS 16: How lease accounting is
changing. [online] Blog.innervision.co.uk. Available at: http://blog.innervision.co.uk/the-
difference-between-ias-17-and-ifrs-16-how-lease-accounting-is-changing [Accessed 24 Sep.
2019].
Pwc.com. (2019). In depth A look at current financial reporting issues. [online] Available at:
https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-16/ifrs-in-depth-a-new-
era.pdf [Accessed 24 Sep. 2019].
Www3.greatamerica.com. (2019). CURRENT VS. NEW LEASE CLASSIFICATION
COMPARISON. [online] Available at: https://www3.greatamerica.com/hubfs/OEG/Flyers
%20and%20Whitepapers/Current%20VS.%20New%20Lease%20Classification.pdf
[Accessed 24 Sep. 2019].