Audit and accounting insights - page 8

The last time we discussed lease contract modifications. The next thing that should be addressed and is present in the economic reality is the leaseback. It is very often the case that entities first purchase a given fixed asset (a building, specialist equipment or manufacturing machine) but then, given the lack of funds or as a consequence of streamlining the financing of their investments, decide to sell this asset and lease it back later.

In this article, resuming the topic of IFRS 16, we will have a look at situations in which a lease contract has been modified. In the opening remarks it is worth recalling that any changes of the interest rate, being the basis for calculating the lessor’s interest, or any changes of the index (e.g. inflation level), being the basis for calculating lease payments, are already included in the variable payments and shall not be discussed here any further. Any such changes result only in the need to make adjustments to the outstanding liabilities and adjust the right-of-use assets accordingly.

Much has been said so far about possible exclusions from the new standard, the valuation of assets and liabilities, discount, implementation of the new standard or lease components. Another issue that should be considered on the so-called inception date is the definition of a lease contract. According to IFRS 16, a contract is a lease if, in return for payment, it has the right to exercise control, including but not limited to obtaining economic benefits, over the use of an identified asset for an agreed period of time.

In the last article we mentioned that individuals may apply the new standard in the same way as other new standards – with a full retrospective approach. The modified retrospective approach may be of much greater interest. We cannot forget the opening balance adjustment completely, nevertheless the International Accounting Standards Board agreed to significant savings in time and costs when changing standards and implementing IFRS 16 by limiting the restatement of comparative years.

So how do we go about bookkeeping if we want to seize the opportunity of keeping the books abroad within the established structures, which reduces the company’s costs, while avoiding any additional costs that may be incurred in the event the correctness of the bookkeeping is challenged? Theoretically the easiest, yet often the most difficult solution is to rely on properly configured bookkeeping software.

When a year ago one of our colleagues, Radosław OSMÓLSKI, wrote about the major pitfalls of using a foreign accounting system for keeping the books of accounts of a Polish company (read here), we have already had some experience both when it comes to shadow accounting and advisory on system solutions enabling reporting that would meet the needs of the Polish financial reporting and tax system. However, we are moving on every year, as we are working with an ever growing number of foreign financing and accounting systems and we are looking for even better solutions for our customers, so that doing business in Poland does not become a bureaucratic nightmare for them. That is why today we are going to focus not only on the form, but also on the place of bookkeeping.

We previously focused on establishing and discussing the leasing and non-leasing components and on how to divide fees between these parts of the contract. The following articles will cover topics related to the modifications of lease contracts and variable fees. We receive many queries about IFRS 16 and the application of the new regulations as of 1 January 2019, so let us start by looking at the application of the standard for the first time.

Previously, we focused on the establishing of the starting value of the right to use an asset. We have mentioned the fact that the value of the obligation should be discounted. And how to calculate the discount? What rate of discount to apply?

In the previous parts, we were discussing theoretical aspects related to leasing and the new standard, among others: whom it concerns, what the exemptions are and when the commencement of leasing shall take place. The next issue to be discussed is the establishing of the starting value as well as the amortization rate.

The revolutionary reform of the National Court Register (NCR), which will soon come into force, may surprise some entrepreneurs. It will cover a very wide range of various technical changes, which fundamentally change the functioning of not only the registry itself, but above all force entrepreneurs into new responsibilities. As we have written about this recently, the financial statements will go first.