For many organisations, leasing is an important part of their commercial activities as it is a means of gaining access to assets and obtaining financing, while at the same time reducing exposure to the risks associated with ownership of the assets.
Internationally, IFRS 16 Leases became mandatorily effective for annual reporting periods beginning on or after 1 January 2019 and replaced IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, as well as two lease-related interpretations.
In Thailand, IFRS 16 was introduced into its Financial Reporting Standards for publicly accountable entities as TFRS 16, effective for annual reporting periods beginning on or after 1 January 2020.
The new leases standard introduced a single model of lease accounting for lessees, removing the need to distinguish between operating and finance leases.
Lessees now have to recognise most leases on the balance sheet as a right-of-use (ROU) asset with a corresponding liability.
In terms of the income statement, depreciation (or amortisation) and interest expense replace operating lease expense.
For lessors, accounting for leases has remained largely unchanged. Lessors still have to make a distinction between operating and finance leases depending on whether or not substantially all the risks and rewards of ownership of the underlying asset are transferred.