January 9th, 2018

Sometimes the balance sheet does not tell the whole picture of a company’s health. Take, for example, the 2011 bankruptcy of Borders Group. The company had not recorded its store leasing commitments on the balance sheet – commitments that totaled $2.8 billion, or 7 times the company’s registered liability.

Effective January 1, 2019 for many companies, the IASB’s and the FASB’s new leases standards require nearly all leases to be reported on lessees’ balance sheets as assets and liabilities. Virtually every company uses rentals or leasing as a means to obtain access to assets and will, therefore, be affected by the new standard.

IFRS 16 is an International Financial Reporting Standard (IFRS) put in place by the International Accounting Standards Board (IASB) providing guidance on accounting for leases, and which makes significant changes to the way in which leasing transactions are reported in the financial statements of lessees.

To comply with IFRS 16 – which stipulates that all lessee leases should be reported on the balance sheet – there will be more pressure on CFOs to get more creative in generating revenues to offset these liabilities.

While dynamic discounting has been in existence for several years, today it’s fast becoming one of the key tools of today’s new breed of innovative CFOs who are discarding the traditional practice of holding onto cash and delaying payments, which has proven to deliver inadequate returns in today’s fast-moving and demanding economy. Leading organizations are leveraging dynamic discounting to forge ahead with disruptive approaches that make early-pay discounts a real source of cash – capturing up to 2% of corporate spend directly back the bottom line and optimizing cash management in real-time.

Source: https://www.financialdirector.co.uk/2017/10/11/ifrs-16-happens-3000bn-added-balance-sheet/