EFRAG consulting on draft endorsement for IFRS 16

The European Financial Reporting Advisory Group (EFRAG) is now consulting on its draft endorsement advice on the new lease accounting standard, IFRS 16

EFRAG has not identified that IFRS 16 would have major deleterious effects on the European economy, including financial stability and economic growth. Accordingly, EFRAG has assessed that adopting IFRS 16 is conducive to the European public good.

EFRAG has already held a preliminary consultation which closed last December and which considered whether IFRS 16 met the qualitative characteristics of relevance, reliability, comparability and understandability, raises no issues regarding prudent accounting and is not contrary to the true and fair view principle.

This earlier consultation also looked at whether IFRS 16 would improve financial reporting, compared to IAS 17 Leases, and whether lack of full convergence with the equivalent standard on leases in US GAAP would put European entities at a competitive disadvantage.

At the time, EFRAG said it had not completed its assessment of the cost and benefits expected to arise from the application of IFRS 16, and did not give an opinion as to whether the standard was conducive to the European public good.

It has now undertaken additional research in respect of the impact of IFRS 16 on SMEs and considered the findings from the economic study commissioned by EFRAG, as well as expert advice from the European Central Bank and the European Banking Authority.

As a result, EFRAG has now assessed that IFRS 16 meets the qualitative characteristics of relevance, reliability, comparability and understandability, leads to prudent accounting, and it is not contrary to the true and fair view principle.

The group also says the standard would improve financial reporting and would reach a cost-benefit trade-off that is acceptable.

EFRAG’s draft endorsement is open for consideration until 13 March.

EFRAG’s IFRS 16 Leases draft endorsement advice is here.

 

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