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Analysis of the effects of applying the new IFRS 16 Leases on the financial statements

Current model of lease accounting pursuant to IAS 17 Leases requires the classification of leases on operating and finance leases. There is a distinction in accounting treatment of each type of lease. Significant differences are observed in financial statements of lessee. According to IAS 17, if there is a contract about the operating lease the lessor recognize the asset in lease in its financial statement of financial position, while the lessee recognizes only the costs of rent in its income statement (but not the assets in lease and financial liabilities related to lease during lease period). If there is a contract about the finance lease, the lessee recognizes the assets in lease and financial liabilities related to lease in its financial statement of financial position. Many of financial statements users have highlighted disadvantages of accounting model for operating lease, primarily because there are not evident financial liabilities during whole lease period in the statement of financial position of a lessee. Therefore, the financial statements of a lessee are not representing faithfully its financial position as well lessees’ indebtedness is not appropriate presented. In order to enhance the accounting model for leases, in January 2016 the International Accounting Standards Board (IASB) issued a new accounting standard IFRS 16 Leases that will become effective for annual reporting periods beginning on or after 1 January 2019 (IFRS 16 will replace IAS 17). New IFRS 16 implement unique accounting model for all leases in financial statements of a lessee. Changes in lease accounting are focused on better and comprehensive presentation of accounting information related to leases in financial statements. The implementation of new accounting model will influence on the coverage of information presented in financial statements, and consequently on financial ratios of a lessee. The goal of this paper is to investigate and analyse key effects which the implementation of IFRS 16 and new accounting model for lease will have on financial statements. The main consequences and effects of implementation of IFRS 16 are analyzed through the case study.

Assessment of effects, Financial statements, IAS 17, IFRS 16, Lease accounting

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