Standards that apply for the first time for the 2019 financial statements.

Decrees 2170 of 2017 and 2483 of 2018 introduced new standards that began to apply in 2019, the first impacts of which will be seen in the financial statements for this period.

In this editorial we summarize the main changes that you should include in your reports.

In the preparation of the 2019 financial statements you should take into account the following standards that will be reflected for the first time in the reports for this period:

IFRS 16 leases

IFRS 16 is the new standard that had to be mandatorily applied from January 1, 2019 for the accounting of leases of Group 1 entities.

This standard was added to the group 1 regulatory framework by Decree 2170 of 2017, replacing IAS 17 in force until December 31, 2018.

Although it should be noted that Article 8 of the aforementioned Decree 2170 of 2017 allowed the early application of the standard, those who started the implementation of IFRS 16 in the current year will observe in the 2019 financial statements the first impacts of its implementation.

Main changes

Below, we mention the most relevant changes that you should take into account for the presentation of the 2019 financial statements.

It should be noted that the main changes will be reflected in the lessee’s accounting, as we will see below.

“IFRS 16 eliminated this division made by the previous IAS 17, only for the accounting of lessees”.

If the group 1 entity is the lessee, it must take into account:

–Do notclassify leases between operating and finance leases: IFRS 16 eliminated this division made by the previous IAS 17, only for lessee accounting.

–Evaluatewhether the contracts are leases or service contracts: the contract is a lease when it stipulates the right to control the use of an identified asset, for a period of time, in exchange for a consideration. If not, it is a service contract.

–Recognizeall lease contracts simultaneously as an asset and a liability in the statement of financial position (i.e., in a manner similar to the finance lease model in IAS 17).

–Reviewwhether the exception provided in IFRS 16 for intangible leases, i.e. those that meet any of the following conditions, applies to your lease contracts:

o Short-term leases, equal to or less than one (1) year.

o Leases of low value.

For leases that meet the exception, they must be accounted for as an expense, on a straight-line basis, during the lease period.

See our editorial IFRS 16 on the treatment of leases: some important insights for further discussion.

If the group 1 entity is the lessor, it must take into account the following:

– Continue toclassify your leases between operating and finance leases. Remember that when substantially all the risks and rewards of ownership of the underlying asset are transferred, the contract is a finance lease.

Impacts

If the group 1 entity is the lessee, it will have new assets and liabilities recognized on its balance sheet, affecting its financial indicators.

Group 2 entities

Note that group 2 entities continue to account for leases under section 20 of the SME Standard, which requires them to be classified between finance and operating. IFRS 16 does not affect SMEs.

Amendments to IAS 40 Investment properties

The amendments to IAS 40 result from the application of IFRS 16. The main amendments are as follows:

– In thecase of investment property that is held by a lessee as a right-of-use asset, it had to be recognized applying IFRS 16, i.e. as an asset and liability simultaneously (see paragraphs 7 and 61 of IAS 40).

–Ifduring the period the entity has defined a change of use of an investment property, it should have transferred it to inventories (IAS 2), to property, plant and equipment (IAS 16), or to a lease (IFRS 16), as appropriate. In these cases the cost is the fair value of the investment property at the date of change of use (see paragraph 60 of IAS 40).

IFRIC 22

Taking into account that IFRICs are guidance issued for the purpose of providing greater clarity on certain transactions, Decree 2483 of 2018 incorporated IFRIC 22, which deals with foreign currency transactions and advance consideration.

This IFRIC has to be observed by Group 1 entities that pay or receive a foreign currency transaction in advance, from which a non-monetary asset or liability arises, i.e. a non-financial receivable or payable.

Under IFRIC 22, the exchange rate for recognizing the transaction is the rate at the date of initial recognition of the non-monetary asset or liability.

Source: Update