Ifrs 16 New Lease Accounting PDF Download

With the beginning of January 2019, the new international financial reporting standard IFRS 16 became operative. It replaces the preceding IAS 17 and comes along with far reaching changes for the lessee and the lessor. This thesis will review existing literature on the development of accounting lease standards to understand the need for change. Funded back in 1994 IAS was majorly characterized by its ”all-or-nothing” approach that implemented the categorization of leases into finance- and operating leases. Whilst a finance lease recognized assets and liabilities on the balance sheet, an operating lease did not. IFRS 16 changed this with the establishment of the “right-of-use-approach”. Staring in 2019 it will be relevant for most previous operating leases in the balance sheet. The second part will explain based on existing literature (e.g. Moralez-Diaz and Zamora-Ramírez, 2018; Löbach 2015) which impacts this development will have on the accounting principles, financial statements as well as on strategic- and operational orientation of a company. To expand the perspective on this topic the underlying impacts are empirically analyzed with the conductance of four expert interviews. These involved three industrial cornerstones that are affected by the implementation of the new standard: Lessees, Lessors and Auditors. An Aviation Company, an Insurance Company as well as two Auditing firms gave their personal insights towards possible financial impacts of IFRS 16. Concisely, the new accounting standard will increase balance sheet ratios, because of the “right-of-use” asset and its corresponding liability. The EBIT and EBITDA ratios increase on the income statement. At the same time the frontloading effect creates a non-linear relation of total lease expense over the periods. As to the currently persistent low level of interest rates, this effect will be reduced. Lastly, the cash flow statement is affected as well. IFRS 16 causes a reduction of cash for operating activities whereas cash outflow used for financing activities increases. Generally, this thesis shows that the IFRS 16 standard will have impacts on companies ́ finance ratios and also on management in general. As to the complex requirements that accounting faces since January, today ́s managers will need to achieve a better organizational- and IT structure to handle these impacts.