FSACCI Roundtable.
Lofty Brainchild; in partnership with the Companies and Intellectual Property Commission and Mazars hosted a Coffee Round Table workshop on 26 March 2019 at the French South Africa Chamber of Commerce and Industry. The workshop was primarily centred on an update on the rollout of the CIPC’s XBRL digital reporting requirements in South Africa, along with a discussion on IFRS 16 which came into effect on 1 January 2019, and the implications on lease accounting.
Mr Joey Mathekga, XBRL Programme Owner at the CIPC, briefly described XBRL, explaining that it is a digital reporting Technology Standard specifically developed for business and financial data exchange. It is a freely available Standards-Based way to communicate business information (e.g. IFRS accounting standards) and is managed by a Global non-profit consortium (XBRL International, more than 50 countries) – with the local jurisdiction being XBRL South Africa. The CIPC had recently installed the “Hard Stop” functionality on 12 March 2019 to ensure that companies submit either their Annual Financial Statements or Financial Accountability Statements together with their annual returns.
Mr Mathekga added that a total of 6,850 companies out of a total of over 100,000 had successfully filed in XBRL. The current CIPC Base Taxonomy included IFRS2016 and Companies Act requirements and updates of IFRS2017; IFRS2018; IFRS2019; GRAP; Companies Act and other related considerations to be incorporated in the new Taxonomy from 01 October 2019.
Justine Combrink, Partner at Mazars presented on the IFRS 16 leases’ standard. IFRS 16 Leases was issued by the IASB in January 2016 and became effective for reporting periods beginning on, or after, 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard introduced a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.
The adoption of the new standard would not affect the profit after tax over the duration of a contract as the total lease payments which would have been expensed over the lease term are unaffected. However, due to the impact of higher finance charges in the early years of the lease, the impact on earnings would initially be dilutive, before being accretive in later periods.
The new standard moved the majority of lease payments below EBITDA in the form of interest charges on the lease liability, as well as a depreciation charge on the right-of-use asset as opposed to operating lease expenses. This would result in an increase in EBITDA over the lease term. Application of the standard would also impact key ratios linked to EBITDA e.g. Net debt to EBITDA.
Under IAS 17 Leases, the operating lease payments were included in cash flows from operating activities. Following the adoption of IFRS 16 Leases, the lease payments would now be included in cash flows from financing activities. The result would be an increase in the inflows from operating activities and an increase in the outflows from financing activities owing to a significant reclassification between the line items on the statement of cash flows.
Thusho Mokgoto, Financial Director at Lofty Brainchild, then presented on Lofty’s suite of products that would simplify companies’ XBRL and IFRS 16 reporting obligations. Of great interest was the Disclosure Management solution which simplifies the creation of annual reports whilst generating the reports in XBRL format. A lease management tool with the best capabilities for capturing complicated lease contracts and producing IFRS 16 compliant output was presented as a solution that companies should consider
