Region

Jurisdiction

Regulator

2017-06-17

Clarification on Changes in the Accounting Treatment for Lease Contracts (IFRS 16)

The Director General of Banking Supervision issued this circular to mandate local banks operating in the Kingdom to record lease contracts as liabilities and corresponding right-of-use assets in their financial statements under IFRS 16. The directive aligns with the January 1, 2019 effective date and early adoption option established by the IASB and FASB, while emphasizing the Basel Committee’s April 2017 FAQs available on the Bank for International Settlements website. Institutions must review these guidelines to ensure compliant accounting treatment and accurate balance sheet reporting.

Saudi Arabia

Saudi Central Bank

Banking Policy Management

Reference No.:
Attachments:

Circular

To:

The Esteemed,

Greetings:

Subject: Clarification on Changes in the Accounting Treatment for Lease Contracts (IFRS 16)

With reference to the review conducted by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in 2016 regarding the accounting treatment for lease contracts, which resulted in the issuance of "International Financial Reporting Standard 16 - Leases" and the update to Financial Accounting Standards No. 2-2016, effective from January 1, 2019 for institutions with fiscal years ending on that date, and with the option for early adoption of both standards.

We wish to inform you that both standards require lease contracts to be recorded in the financial statements, with lease payments recorded as liabilities on the balance sheet. Meanwhile, right-of-use assets are recorded in the asset section.

Given the numerous inquiries regarding these two standards, the Basel Committee on Banking Supervision has reviewed and published its Frequently Asked Questions (FAQs) in April 2017. Therefore, we emphasize the importance of institutions reviewing these FAQs on the official website of the Bank for International Settlements:

www.bis.org/bcbs/publ/d396.htm

Yours sincerely,

Thamer bin Mohammed Al-Eissa

Director General of Banking Supervision

20/9/1438 AH

Distribution Scope:

Local banks operating in the Kingdom.

Dated:
Reference No.: 38100099758
Date: 1438/09/23
Attachments:

P.O. Box 2992, Riyadh 11179, Telegram Address: Markazi, Telex 404400, Phone 4632000, Fax 4667414