What New IFRS 16 Accounting Standards Could Mean for Your Business

This year will see some changes to the Australian accounting standards, with the introduction of IFRS 16 significantly changing how leases are accounted for – and in turn how people may view your business.

What’s changed?

In the past, only when you entered a Capital (FASB) or Finance Leases (IASB) were you required to record the impact on your balance sheet.

Lease accounting was only considered for company vehicles, photocopiers and the like. That’s all changed this year!

From the start of this year (2019), IFRS 16 was introduced. This means all leases over 12 months are required to be recognised on the balance sheet which now includes any leased accommodation.

This now means that any tenancy over 12 months will be recorded as a ‘right to use asset’ offset by a corresponding liability.  
IFRS Change calculation

To complicate things further, whilst the rent you pay will be as you have agreed, you will have to apply a ‘cost of capital’, or ‘interest’ cost over the life of the lease.  

That means that in a similar way to a mortgage, the interest cost will be higher in the earlier stages of the lease due to higher payable interest on the larger liabilities.

Read more: How to Design the Right Workspace for Your Team

Who will this affect?

Essentially, this may impact anyone who’s a recipient of your financial statements. This is likely to include financiers and bankers – including business owners whose personal financing is based on company performance.

The more sophisticated recipients should understand that fundamentally your business is still the same under IFRS 16 – but as with any large-scale change, it will take some time to settle and may cause a period of uncertainty.

One likely outcome is that what was once normal business transactions may take longer as people understand the real impact of the change.

Your tax obligations are unlikely to materially change and are governed by your local tax legislation. You may incur some one-off deductible expenses when setting up – but once set, ongoing costs should be minimal.

Read more: How to Choose the Best Coworking Space

Should we look into short-term leases?

Perhaps!

IFRS 16 applies to all leases over 12 months, which means many short-term agreements may be better suited for your business.

With the emergence of flexible agreements and custom terms at coworking spaces like Hub Australia continue to flourish, another option is present.

Businesses can enter into agreements less than 12 months with a coworking provider and find themselves exempt from IFRS 16’s lease conditions, as well as taking advantage of all the other benefits of coworking.

What else does a flexible workspace offer?

Most shared office spaces and flexible workspaces like Hub Australia provide your business with more than just desks and chairs (although you save money not having to provide or maintain these too!).

Flexible workspaces provide access to state-of-the-art facilities and amenities, with in-house cafés, exercise spaces, meditation areas, full kitchen facilities and parents rooms.

All this is supplied and maintained by Hub Australia, meaning you and your team can make the most of all of the extras without worrying about extra costs and maintenance efforts.

Read more: Why a Flexible Workspace is Perfect for Growing Businesses Like Mobi2go

Where do I find flexible workspaces near me?

There are many flexible workspaces around the country – Hub Australia has 7 locations across 4 major cities, in Brisbane, Adelaide, Melbourne and Sydney.

Hub Australia transforms iconic and historic buildings into beautiful coworking spaces, and all are centrally located near public transport and the best each city has to offer.

Read more: Hub Australia Now Operating 7 of the Best Coworking Spaces in Australia
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Hub Australia is home to growing businesses around Australia, with offices and workspaces to suit teams from 1 – 75+. Whether you’re an entrepreneur or part of an established business, Hub Australia provides the perfect home for your team with customisable leases and business expertise in the building.

Contact us to find out more.