2018 preparation period to adopt IFRS 16

In 2016, the International Accounting Standards Board (IASB) issued IFRS 16 Leases, which repealed the following standards: IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC 15 Operating Leases - Incentives and SIC 27 Assessing the substance of transactions that take the legal form of a lease. Those familiar with full IFRS know that this is a substantial change in the way leases are accounted for from the lessee's point of view, and one that has been expected for several years now.

The impact at the level of composition of the standards is that all the repealed standards were consolidated into one, but from the point of view of content, the impact is that for a lessee, whether with financial or operating characteristics, assets and liabilities must be recognized for accounting purposes.

In the initial recognition, the asset is called right of use, which may be classified within property, plant and equipment, intangible assets or investment properties, and the liability is classified within other financial liabilities, as it is currently.

With the adoption of IFRS in Colombia, through Law 1314 of 2009, the users of such information knew that the recognition of a financial lease implied recognizing an asset and a liability, but it was not foreseen that the situation was the same for operating leases, since they recognized an expense for the value of the lease fee. With the introduction of IFRS 16, even operating leases from the lessees' perspective will add to the composition of assets and liabilities in an entity's statement of financial position, thus modifying financial indicators and affecting covenants (if applicable). However, not all operating leases should be recognized as an asset, since certain conditions must be met in order to recognize them.

The effective date of IFRS 16, according to the IASB, is from January 1, 2019. In Colombia, the Technical Council of Public Accounting (CTCP) issued on June 13, 2017, a document compiling the 10 comments received from different national entities (Bank of the Republic, Superintendence of Industry and Commerce, DIAN, Superintendence of Health, Superintendence of Family Subsidy, National Planning Department, Superintendence of Domiciliary Public Services, Superintendence of Finance, Technical Committee of the Financial Sector and Technical Committee of the Real Sector), with arguments and positions on the possible impacts of the adoption of the standard.

The CTCP is clear in its opinion that its effective date is expected to coincide with the international one, i.e., as from January 1, 2019, but recommends that the effective date be later, which is unlikely to happen, since there are no compelling arguments not to do so.

But that is not all, the IASB explains that there are two ways to apply IFRS 16; the first retroactively to each reporting period prior to that presented and the second retroactively with the cumulative effect of the initial application of the standard recognized at the date of initial application. Regardless of both alternatives, the assessment and quantification should be prepared and analyzed in 2018, in order to address and have the figures ready for the period 2019 and 2018, depending on the alternative selected.