What could be the consequences in the 2019 Financial Statements of the application of the new IFRS 16?
The following two papers refer to the effects of the new IFRS 16 on both financial ratios and lease as parts of 2019 financial statements; you may want to check them out:
The impact of IFRS 16 on key financial ratios: a new methodological approach
J Morales-Díaz, C Zamora-Ramírez - Accounting in Europe, 2018 - Taylor & Francis
IFRS 16 (leases) implementation: Impact of entities' decisions on financial statements
J Morales Díaz, C Zamora Ramírez - … IEB International Journal of Finance …, 2018 - idus.us.es
IFRS 16 includes detailed
guidance to help companies assess
whether a contract contains a lease or a
service, or both. Under current guidance
and practice, there is not a lot of emphasis
on the distinction between a service or an
operating lease, as this often does not
change the accounting treatment.
The analysis starts by determining if a
contract meets the definition of a lease.
This means that the customer has the
right to control the use of an identifiable
asset for a period of time in exchange
for consideration.
Dear Olga
Additional literature on the impact of IFRS 16 can be found at:
Article Impact of New Standard “IFRS 16 Leases” on Statement of Fina...
https://ideas.repec.org/a/aud/audfin/v15y2017i145p114.html
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888364
http://www.jnbit.org/upload/JNBIT_Joubert,_Garvie_Parle_15(2)_2017.pdf
https://www.ifrs.org/-/media/feature/resources-for/investors/investor-perspectives/investor-perspective-jan-2016.pdf
Article Is the Hospitality Industry Ready for the New Lease Accounti...
See this link, please https://www.researchgate.net/deref/https%3A%2F%2Fideas.repec.org%2Fa%2Faud%2Faudfin%2Fv15y2017i145p114.html
Please look into this
https://www.researchgate.net/publication/309458245_Impact_of_New_Standard_IFRS_16_Leases_on_Statement_of_Financial_Position_and_Key_Ratios_A_Case_Study_on_an_Airline_Company_in_Turkey
Article The Effects on Financial Leverage and Performance: The IFRS 16
Article Effects of IFRS 16 on Key Financial Ratios of Spanish Companies
Under IFRS 16, a lessee will no longer make a distinction between finance leases and operating leases. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all (material) leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Therefore, IFRS 16 Leases will lead to an increase in leased assets and financial liabilities in the statement of financial position of the lessee. Whereas the EBITDA of the lessee increases as well since the lessee will recognize the interest cost and the depreciation of the leased asset instead of the operating lease expenses in the statement of profit and loss. Accordingly, companies with material off-balance sheet lease commitments will encounter significant changes in their key financial metrics such as leverage ratio, return on invested capital and valuation multiples. Although equity values should not change, enterprise values of companies will increase.
Article The impact of transition from EAS 20 to IFRS 16 on financial...
Article Effects of IFRS 16 on Key Financial Ratios: A New Methodolog...
Article IFRS 16 (leases) implementation: Impact of entities' decisio...
Article IFRS 16 Leases consequences on the financial statements ...
https://www.researchgate.net/publication/313809688_IFRS_16_Leases_consequences_on_the_financial_statements_and_financial_indicators
Firstly, it shall be explicitly stated what type of consequences you mean. We should distinguish at least two aspects: a) impact on financial statements and b) impact on economic behaviour.
A) Financial statements: Other factor fixed, the capitalisation of former operating leases will result in:
- increase in (non-current) assets and liabilities
- decreases in services costs and their replacement by depreciation charges + interest expense
- increase in EBIT and significant increase in EBITDA
- increase in operating CF and decrease in financial CF
B) Impact on financial statements is easy if no reaction of firms to new rules occurs. However, this is not always true as some firms are opportunistic and managers exercise rent-seeking at expense of owners and other stakeholders.
It depends on a model of decision-making by users (fully rational; partly rational; fully irrational), dynamics of changes in their decision-making as well as the management incentives to manage earnings combined with their expectation about the users' reactions in terms of decision-making.
1) Supposing that users are fully rational, then there should be hardly any change. According to full-disclosure principle and rational model of behaviour, users already under IAS 17 can take disclosures about operating leases from notes and to adapt financial statements figures to their needs. IFRS 16 then will decrease their information-processing costs only.
2) In reality, there is a partially limited rationality (esp. in short-term until users are familiar with all key features of new standards) and we can expect that opportunism-driven firms will try to rearrange contracts to manage accounting figures as desired.
Article IFRS 16 Leases consequences on the financial statements ...
the financial statements of the lessee will changes
in the balance sheet, there will be:
an increase in lease assets
an increase in financial liabilities
a decrease in equity,
in the income statement, there will be:
; an increase in EBITDA
anincrease in finance costs.
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