ASIC changes to allow for certain AFS licensees to use lease assets to fulfil their licence financial requirements

From 28 April 2021, changes have been made to the financial requirements for some types of Australian Financial Services (AFS) licensees relating to the treatment of leased assets.

Following the mandatory adoption of the new accounting standard AASB 16 Leases (AASB 16) required from 1 January 2019, leases are to be reflected on the balance sheet of a lessee by way of a lease liability and a corresponding right-of-use asset.

ASIC had previously viewed Right of Use assets as Intangible Assets, meaning that after adoption of the new standard these lessees now had to include their lease liabilities when calculating their Net Tangible Asset (NTA), Surplus Liquid Funds (SLF), or Adjusted Surplus Liquid Funds (ASLF) financial ratios, but needed to exclude the corresponding right-of-use assets. This resulted in some AFS licensees facing difficulty in satisfying their financial requirements because of a decrease in net tangible assets despite no ultimate change to their cash flows or business structure.

In July 2020, ASIC issued a temporary no-action position in relation to potential breaches of the financial requirements that arose from changes to the accounting treatment of leased assets. From 28 April 2021, legislative instruments have been issued to alter the financial requirements to allow those affected AFS licensees to include right-of-use assets in the calculation of their Net Tangible Assets, and where the right-of-use asset is a current asset, Surplus Liquid Funds and Adjusted Surplus Liquid Funds. 

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Published: 07/07/2021


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