New lease accounting standards have shone a spotlight on Lease versus Buy decision-making, as well as the effective management of leases. As such, now is the perfect time to consider ways to maximise the benefits of leasing for your organisation – from better supporting liquidity planning to garnering significant cost savings at the inception of a lease.
The transition from IAS 17 to IFRS 16, the new lease accounting standard, has been widely documented in the European trade press. Likewise, across the Atlantic, where ASC 842 has superseded ASC 840 in US GAAP. Under these new standards, virtually all leases must now appear on the balance sheet.
Despite the challenges of meeting the immediate, and indeed ongoing, compliance requirements, this new dawn for lease accounting also presents a number of strategic opportunities for the finance function, and treasurers in particular. The first is to gain greater visibility over leases, which can, in turn, lead to improved cash forecasting.
A well-run leasing model, whereby leases are visible in a global, cloud-based platform, can free up working capital to be invested in other parts of the business that might have better returns such as expansion, marketing or R&D. Another benefit of leasing is the predictability of payments. Monthly expenses are known in advance enabling treasury organisations to better forecast and plan for cash needs.