Under paragraph B1 of AASB 16 Leases (AASB 16), an entity may apply AASB 16 to a portfolio of leases with similar characteristics where it is reasonably expected that the effects on the financial statements would not differ materially from applying AASB 16 to the individual leases within that portfolio.
AASB 16 extract:
Paragraph B1: This Standard specifies the accounting for an individual lease. However, as a practical expedient, an entity may apply this Standard to a portfolio of leases with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. If accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio.
Lessees may account for a portfolio of similar leases as a group. Lessees must ensure that leases within the portfolio have similar:
- remaining lease terms
- classes of underlying asset
- economic environments.
Entities shall use estimates and assumptions that reflect the size and composition of the portfolio. Lessees will need to provide supporting information to confirm that the portfolio outcome would not differ materially from applying AASB 16 to the individual leases within that portfolio.
Note 21: Lease portfolios
Commonwealth entities can group leases within a portfolio when each lease has a similar remaining lease term and is for a similar class of underlying asset in a similar economic environment, subject to the outcome not being materially different to recognition of the individual leases within that portfolio.
Net cash reconciliation disclosure
The net cash appropriation arrangements note, in annual financial statements and Portfolio Budget Statements, identifies whether Commonwealth entities have incurred or will incur operating losses, after adjusting for capital funded expenses.
Example: Disclosure in net cash appropriation note
Non-corporate Commonwealth entities that received Departmental capital budget (DCB) funding need to adjust their operating result for depreciation expenses on assets acquired using DCB funding.
Commonwealth entities with leasing transactions should also adjust the net cash appropriation arrangements note to remove the impact of AASB 16 on their operating result. As outlined at Part 9.5 of RMG-125 Commonwealth entities financial statements guide (RMG-125), the note should:
- add back depreciation of ROU assets
- deduct lease principal repayments (accounted for through the balance sheet).
Technical losses may still occur due to the implementation of AASB 16. For example:
- entity expenses may have increased under AASB 16, due to the clearing of lease incentive and straight-lining provisions on transition
- foreign exchange losses may be incurred on lease liabilities.
In such cases, the net cash reconciliation note should not be amended. However, a footnote can be added explaining the extent to which they contributed to the overall operating loss. For more information on Commonwealth entity financial statements requirements, see RMG-125.
For Commonwealth entities, Finance may determine that approval by the Minister for Finance is not required where technical operating losses are outside the entity’s control and the loss does not impact the entity’s financial sustainability. To be considered a technical loss, entities will need to demonstrate both that the:
- loss was solely due to the de-recognition of AASB 117 Leases (AASB 117) lease incentive provisions on AASB 16 transition date
- the entity had saved sufficient cash reserves to manage outstanding lease payments.
Note 22: Net cash reconciliation disclosure
All Commonwealth entities that have leasing transactions should include a net cash appropriation arrangements note in their annual financial statements.