A year on from the implementation of IFRS 16, this article explores the legislation’s overlooked opportunities for businesses.

Since its introduction on 1 January 2019, IFRS 16, the new International Financial Reporting Standards law, has affected the way 85% of the world’s listed companies handle and disclose the costs incurred by leased assets. It’s meant that lease contracts must now be reported as liabilities in company accounts, putting an estimated $2 trillion of leased assets into view for the first time.

Air France restated its financial statement from 2017 in line with IFRS 16. When it did, the total liabilities on its balance sheet increased by 29% and total assets increased by 23%. For Ramirent, a construction equipment leasing company based in Finland, adopting IFRS 16 leases increased its net debt by 31%, from €350.6m (£307.8m) to €459.3m in 2018. 

As well as the financial implications, many property managers have viewed IFRS 16 as another layer of paperwork. However, one of the unexpected consequences of the new standard is driving companies to opting for flexible workspace. Leased office space now needs to be declared as a liability in full, except where the term is 12 months or less with no purchase option. As a result, many businesses are seeking more flexible lease terms to help manage the impact on their balance sheets.

For a business looking at flex space, we have laid out some of the additional advantages that come from these agreements:

Business expansion

Flexible office contracts can allow businesses to expand into new countries or territories, without requiring a move to new, permanent office locations. Instead, companies are able to lease additional office space as and when needed and, in the same vein, are able to end contracts quickly if space is no longer needed.

Financial opportunity

Flexible arrangements mean you only pay for the space you need. As that need increases or decreases, you can adjust capacity accordingly. This, of course, makes financial sense and can reduce unnecessary cost. 

Keeping a happy workforce

The latest IWG Global Workspace Survey, revealed that 85% of workers around the world would turn down a job if it didn’t offer flexible working. Over half say having a choice of work location is more important than working for a prestigious company. Providing flexible solutions to employees can encourage greater loyalty, increase productivity and motivation in the workforce as well as aiding recruitment. 

A happy marriage

IFRS 16 was introduced to increase visibility of a company’s lease commitments and better reflect economic reality. The financial implications have been considerable, and some property managers have lamented the additional admin it has brought into their jobs. However, it has also opened the eyes of many property managers to the potential for flex space to improve their business. From reducing waste in office capacity and cost, allowing easier expansion and providing wellbeing benefits to employees, a flexible office space does more than just reduce liabilities on a balance sheet – happily, it does that too. 

Read more about the benefits of flexible workspaces for companies here.