Our Financial Reporting Expert Group contributed to our response to EFRAG's Preliminary Document regarding the endorsement of IFRS 16 Leases.
We noted that although we have been generally supportive of ensuring that EU adopted IFRS is as closely aligned as possible with IFRS issued by the IASB, we are concerned that the impact of IFRS 16 on small and mid-size quoted companies has not been fully considered by the IASB during the standard setting process. In particular, we are concerned that an insufficient amount of work has been undertaken to assess the impact on the cost of debt for smaller companies.
We commented that the adoption of IFRS 16 will have a disproportionate impact on the financial reporting of smaller companies with fewer leases. We noted that the impact on the Income Statement of a material new lease, or of a lease coming to the end of its life, will be greater and will require greater explanation to investors.
We noted that IFRS 16 will make it more difficult for non-experts such as non-institutional investors, an important stakeholder for small and mid-size quoted companies, to clearly and easily identify cash flow commitments. entered into by companies.
We remarked that the US GAAP is preferable in respect of lease accounting because the treatment in the Income Statement for current operating leases will continue to reflect the cash paid, which will facilitate more useful information being provided to users.