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IFRS 16 – the commercial impact on retailers and how to plan for it
HKFRS 15 New Standard– Impact on traditional business entities
Martin Firbank, Head of Retail at PKF Cooper Parry, looks at the commercial impact of IFRS 16 on retailers and how to plan for it
If you work for a retailer you’ll probably do a lot of leasing; stores, offices, distribution centres, machinery, vehicles and so on. And this means the new accounting standard, IFRS 16 is going to have a huge impact on your business.
So, what are the changes?
From 2019 (if you report under IFRS) or 2022 (for new UK GAAP – FRS 102 reporters), IFRS 16 means all leases will be brought onto the balance sheet. Its aim is to make everything much more transparent, which could fundamentally change the way your financial statements look.
All leases – apart from short term and low-value arrangements – will be treated in the same way:
And what are the things likely to be affected?
KPIs are likely to be affected. EBITDA will generally increase. And other measures such as net debt, gearing and return on capital could also change.
Financial covenants, performance-related bonuses, dividend policies and acquisition transactions will be impacted.
It’s important you don’t lose sight of understanding the effect on your tax position too.
Managing the change smoothly
While these changes may influence business decisions about entering lease arrangements, including your ‘lease v buy’ strategy, how you manage change is key to a smooth transition:
What to do next
Firstly, we’re telling all the businesses and retailers we work with not to underestimate this challenge. Follow the tips in this blog, involve the right people and tackle this early.
This article is quoted from PKF International.
For more information and to see how we can help, please contact Martin at firstname.lastname@example.org
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