Leasing standard implementation put back one year

The new International Financial Reporting Standard, IFRS 16 Leases replaces international accounting standard IAS17 and comes into force for accounting periods from January 2019.

However, the Financial Reporting Advisory Board has decided to defer its implementation for most NHS bodies.

The new standard ends the distinction between finance leases and operating leases for lessees. Under IAS17, if a lease was judged to be similar to buying the asset, it was a finance lease, reported on the balance sheet. But operating leases were treated in the same way as service contracts, off-balance sheet and only reported as revenue costs.

It is understood the decision to defer was taken because of a failure to agree how to align national accounts budgeting between Treasury and the Office for National Statistics. National definitions of revenue and capital budgets have implications for how the financial architecture in the NHS is designed.

There are concerns that the application of the standard could have implications for the availability of capital resources and affect the decision over how to procure capital assets.

The Treasury plans to use the extra time to review aspects of how the accounting standard is adopted, including the measurement approach for right of use assets.

While the deferment eases pressure on local NHS bodies, significant work is still needed to identify all current leases.

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