CA ANZ and CPA Australia have lodged a joint submission supporting ASIC’s proposals to include ‘right of use’ (ROU) assets, recognised under AASB 16 Leases, in the calculations of net tangible assets (NTA), adjusted surplus liquid funds and surplus liquid funds that demonstrate compliance with AFSL licence conditions. These proposals are contained in Consultation Paper 336 Financial Requirements – Treatment of Leases assets, which closed for comment on 26 February. 

The introduction of AASB 16 has resulted in a significant change to the way leases are reported on the balance sheets of lessees. While this change was designed to more fairly reflect the underlying economic substance of leasing transactions, the scale of the recognition of ROU assets and lease liabilities under AASB 16 created new challenges for compliance with existing Australian Financial Service Licensee (AFSL) financial requirements (mainly developed under AASB 117). 

Since leases are executory contracts, if the lessee’s right to use the underlying asset ceases for some reason, the corresponding lease liability is also likely to cease. Therefore, it is appropriate to include both the lease asset and lease liabilities in NTA calculations. This decision also reflects the generally held view that ROU assets should take on the character of the underlying asset.