A WEE DRAM
CHRIS GILMOUR: Plugging the hole of off-balance sheet liabilities
International Financial Reporting Standard 16 prevents lease schemes from keeping debt off the balance sheet
For decades, financial reporting has been plagued by a huge black hole of off-balance liabilities, mostly fuelled by complex lease schemes designed to keep debt off the balance sheet. Such contrived efforts by asset financiers and lenders at window-dressing financial presentation and accompanying metrics were driving a coach and horses through the “substance over legal form” principle. The game-changing lease accounting standard, International Financial Reporting Standard (IFRS) 16, puts paid to such crafty efforts and almost everything now needs to come on-balance sheet. There is no longer room to hide in the lengthy disclosure footnotes of financial statements. With the retail sector being lease-intensive and notably impacted, Massmart has communicated the implications for its portfolio of 2,850 leases, with 550 of these being real estate. It assures that the new standard will have no effect on strategy and capital allocation, and leasing will continue as part of its operating m...
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