Impact of New Standard "IFRS 16 Leases" on Statement of Financial Position and Key Ratios: A Case Study on an Airline Company in Turkey

Abstract

1.IntroductionIncreasing the reliability and transparency of the financial statements has recently become an issue on which emphasis have been laid. Although the International Financial Reporting Standards (IFRS) make significant contributions to the issue of the transparency, reliability and comparability of the companies, there are still distances to be covered. IAS 17 Lease Standard taking place among the IFRS has been criticized by the financial statement users due to the fact that financial statements of the companies having significant operating leases do not completely reflect the truth; because, the related Standard gives freedom to the IFRS implementing companies in the determination of their leases as operating or financial lease and this situation forms an important difference in the preparation of the financial statements. When a company classifies its leases as operating lease, the leased asset cannot be seen in the balance sheet of the company and the rental payments that belong to the operating leases are shown as expense in the income statement. Not showing the operating leases in the balance sheet causes the liabilities and profitability of the company to be seen less than it should be. Due to the reasons mentioned above, the need for the establishment of a new standard regarding the leases has occurred and the new standard IFRS 16 related to the leases has been published in January 2016 and will be applied starting from 2019. The new standard shall terminate the distinction between operating lease and financial lease in terms of the lessee and shall ensure the visibility of all the leases in the balance sheet.In a study conducted by White (2015), the annual lease amount realized in the greatest 50 countries of the world in 2013 has been detected as 883.96 billion dollars and this amount has been detected as 5.68 billion dollars in Turkey in the same period. These figures are the indicators of the fact that the unrecorded leases could have a great importance. Within this scope; our purpose in this study is to examine the impacts of the new lease standard IFRS 16 on the statement of financial position and some important financial ratios of an airline company1 having activities in Borsa istanbul in Turkey2.Firstly, the literature review studies shall be given place in the study and after that, the changes brought by IFRS 16 shall be examined. Following this, the impacts of IFRS 16 on the statement of financial position and financial ratios of an airplane company shall be examined.2.Literature ReviewWhile reviewing the literature, it has been seen that many studies have been conducted regarding the leases. In this study, especially the studies examining the impacts of the capitalization of the unrecorded lease proceedings on the financial position and financial ratios of the companies have been given place.In the study conducted by Imhoff et.al. (1991) for the purpose of revealing the importance of operating lease liabilities on the commonly used risk and performance scales, they have applied the method of constructive lease capitalization they have developed themselves in the capitalization of the unrecorded leases and examined its impacts on the assets and liabilities of McDonald's. The ratio of the unrecorded assets to the unrecorded liabilities has been calculated as 62% upon the assumption that the lease period is 30 years, the interest rate is 10% and 15 years of the life cycles have been consumed, the ratio of the unrecorded assets to the unrecorded liabilities has been calculated as 72% upon the assumption that the lease period is 25 years, the interest rate is 10% and 40% of the life cycles have been consumed and as a result, the average of these two ratios has been taken and according to the results of the study in which the ratio of the unrecorded assets to the unrecorded liabilities has been accepted as 67%, it has been detected that there shall be an increase of 785. …