Australian corporate real estate lease reporting ahead of IFRS 16

Abstract

ABSTRACT To improve the transparency of companies’ financial commitments the International Financial Reporting Standard (IFRS) 16 requires companies to report their leased corporate real estate (CRE) on their balance sheets from 1 January 2019. This paper reports Australian CRE balance sheet lease reporting ahead of IFRS 16. This is the first time this has been reported and is also a baseline to evaluate how it changes Australian CRE reporting. 2016 Annual Reports were content analysed to identify current practices with the selected period pre-dating any effects from the standard’s introduction. Detail was limited, other than recording lease expenses. To calculate possible effects of including leased CRE these expenses were capitalised as a proxy for the standard’s methods. Indicative upper and lower end capitalisation rates added between $127.7 billion and $397.0 billion to balance sheets equating to 2.5% and 7.7% (respectively) of the owned PP&E. This also represents an additional 178.6% to 555.2% of current real estate only values. The individual sectors varied but the smallest increase exceeded 100% and the largest increase exceeded 4,000%. This clarifies past assertions about the standard’s effects on CRE Management, but it is still unclear whether IFRS 16 changes tenure preferences towards ownership.