Abstract
This paper analyses the potential impacts of the introduction of a new accounting standard, International Financial Reporting Standard 16 (IFRS 16) – Leases, on financial leverage and performance of entities. This new accounting standard was introduced on 13 January 2016, and will become effective on 1 January 2019; it will have material impacts on the financial statements of listed companies adopting IFRS and change the basic principles of the current accounting system. Our aim is to estimate the impacts of the application of IFRS 16 on listed issuers of financial statements and the different impacts that the new standard could have in different activity sectors. This research estimates the effects of IFRS 16 on the ratios of debt/total assets, EBITDA/revenues and debt/equity. The conclusions summarize the effects on entity performance and net financial position. The research shows that in the financial statements of the lessee, there will be important changes. In particular, in the balance sheet, there will be an increase in lease assets, an increase in financial liabilities and a decrease in equity, while in the income statement, there will be an increase in EBITDA and an increase in finance costs. The impact of the application of IFRS 16 will be different depending on the use of operating lease contracts among the different business sectors. Leases are an important and flexible source of financing; listed companies, using IFRS and U.S. GAAP, are estimated to have around US$ 3.3 trillion in lease commitments. Finally, this study aims to analyse the possible impacts of communication of entities, focusing on alternative performance measures.
Highlights
Businesses today have an increasing need to share their financial information; in order to provide clearer and more transparent information and to facilitate the comparison of information with others, companies must adopt the same rules
This study shows that International Financial Reporting Standard 16 (IFRS 16) will have a significant impact on the financial statements of lessees in terms of both the financial position and economic performance in certain business sectors
On balance sheets, there will be an increase in lease assets, an increase in financial liabilities and a decrease in equity; on income statements, there will be an increase in EBITDA and an increase in finance costs
Summary
Businesses today have an increasing need to share their financial information; in order to provide clearer and more transparent information and to facilitate the comparison of information with others, companies must adopt the same rules. One of the most important points that increase the effectiveness of financial communication is, “compliance with all regulatory requirements”. To obtain greater effectiveness of financial communication, the application of an “accounting regulation” is important; Meeks and Meeks (2001), in this regards, use the term “accounting regulation” to refer to financial accounting standard-setting, auditing/assurance and enforcement and refer to the overall system of regulation, as well as, in some of their discussions, to specific standards. In Europe, the rules for financial communication are entrusted to the European Union, which has decided to adopt international accounting standards for the preparation of financial statements. To increase the comparability of the financial information of different companies (in perhaps different countries), the European Union enacted Regulation (EC) No 1606/2002 of the European Parliament, which requires listed companies to apply the international accounting standards or IAS/IFRS (International Accounting Standards/International Financial Reporting Standards) 1. There are IFRS on various financial http://ibr.ccsenet.org
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