IFRS 16 and London Approach: Difference between pages

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International Financial Reporting Standard 16, dealing with leases.
A non-statutory, informal framework introduced with the support of the Bank of England in  1970 for dealing with financially distressed companies.


IFRS 16 replaces IAS 17: Leases.
The London Approach covers temporary support operations mounted by banks and other lenders for a company or group in financial difficulties, pending its possible restructuring.


IFRS 16 is mandatory - for companies reporting under international financial reporting standards - from 1 January 2019.


Applicable only to firms which are financially distressed but which could have a viable future.


IFRS 16 requires most lease liabilities to be accounted for 'on balance sheet'.


This change removes the former distinction between [[operating lease]]s and [[finance lease]]s.
== See also ==
* [[Insolvency]]




Broadly speaking, IFRS 16 requires all leases to be recognised on the balance sheet, other than short term leases or those for low value assets.  
== References ==
1. http://www.bba.org.uk/policy/article/london-approach/fx-and-money-markets-policy/


The leases to be brought 'on balance sheet' under IFRS 16 include most operating leases that were 'off balance sheet' under IAS 17.
2. [[Media:The London Approach distressed debt trading qb940208.PDF]]
 
IFRS 16 leads to increased transparency and improved comparability between companies that lease and companies that borrow to buy assets.
 
 
However, for many companies IFRS 16 results in material restatements of their balance sheets and - to a lesser extent - income statements.
 
The main balance sheet impact is to 'gross up' both assets and liabilities by the capital amounts of the leases.
 
The main income statement impact is to recognise a greater proportion of total costs in the earlier years of the lease. In other words, cost recognition is 'front-end loaded' under IFRS 16.
 
 
These restatements will normally impact any financial covenant ratios that include ‘debt’, ‘net worth’ or similar indicators, subject to any 'frozen GAAP' provisions.
 
EBITDA and the interest cover ratio are also likely to be impacted.
 
 
==See also==
*[[ASU 2016-02 Leases (Topic 842)]]
*[[Debt]]
*[[DIA]]
*[[EBITDA]]
*[[Finance lease]]
*[[Frozen GAAP]]
*[[Hire purchase]]
*[[IAS 17]]
*[[Incremental borrowing rate]]
*[[Interest cover]]
*[[Interest rate implicit in a lease]]
*[[Lease]]
*[[Operating lease]]
*[[Off balance sheet]]
*[[Residual value]]
*[[Right of Use]]
 
 
==Other resources==
*[https://www.treasurers.org/thetreasurer/definitive-guide-to-deriving-ifrs-16-discount-rates Definitive guide to deriving IFRS 16 discount rates: The Treasurer]
*[https://www.iasplus.com/en/standards/ifrs/ifrs-16 IFRS 16 - IAS Plus]
*[https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/issued/part-a/ifrs-16-leases.pdf?bypass=on IFRS 16 full text]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:Compliance_and_audit]]
[[Category:The_business_context]]

Latest revision as of 17:58, 1 July 2022

A non-statutory, informal framework introduced with the support of the Bank of England in 1970 for dealing with financially distressed companies.

The London Approach covers temporary support operations mounted by banks and other lenders for a company or group in financial difficulties, pending its possible restructuring.


Applicable only to firms which are financially distressed but which could have a viable future.


See also


References

1. http://www.bba.org.uk/policy/article/london-approach/fx-and-money-markets-policy/

2. Media:The London Approach distressed debt trading qb940208.PDF

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