Annual Financial Guidelines for Government Operations: 2020-21 Edition
From the 1st of April 2022, the public sector will be required to adopt the new lease accounting standards outlined in IFRS 16, marking a significant shift in financial reporting practices. This change will impact the way leases are reported in the public sector, with financial statements prepared in accordance with IFRS 16 from this date.
IFRS 16 will replace the current leasing model in the public sector, requiring lessees to recognise most leases as right-of-use assets and liabilities on the balance sheet. This means that the value of leased assets and the corresponding lease payments will be reflected on the balance sheet, providing a more comprehensive view of the sector's financial position.
The Government Financial Reporting Manual (FReM), which serves as the technical accounting guide for the preparation of financial statements, will not apply to the accounting of leases in the public sector from the 1st of April 2022. However, the IFRS 16 application guidance for government financial reporting, published by the UK Treasury, will provide supplementary support to aid in the implementation of IFRS 16.
Key aspects of IFRS 16 and related guidance include the measurement of lease liabilities, which should be initially measured at the present value of the lease payments not paid at the commencement date. Additionally, a contract is considered a lease if the customer has the right to direct the use of an identified asset throughout the period of use.
The Treasury publishes application guidance and supplementary budgeting guidance to assist in the implementation of IFRS 16. While the specific details of the application guidance are not fully outlined on the website, it is designed to help interpret and apply IFRS 16 within the public sector effectively. For detailed guidance, one would typically refer to the official documentation or the latest updates in the FReM.
The public sector is encouraged to familiarise themselves with the changes brought by IFRS 16 before the 1st of April 2022. This will ensure a smooth transition and enable organisations to accurately report their lease obligations in line with the new standards.
- The new lease accounting standards outlined in IFRS 16 will significantly impact the business, finance, and banking-and-insurance sectors within the public sector, as they require lessees to recognize most leases as right-of-use assets and liabilities on the balance sheet, providing a more comprehensive view of the sector's financial position.
- The Government Financial Reporting Manual (FReM) will no longer apply to the accounting of leases in the public sector from the 1st of April 2022. Instead, the IFRS 16 application guidance for government financial reporting, published by the UK Treasury, will provide supplementary support to aid in the implementation of IFRS 16, particularly in the industry sector, where leasing is prevalent.
