Does Adoption of Latest Modifications of IAS 16 Influence on Company’s Profitability? Evidence from European Companies

Abstract

Purpose: This study aims to investigate the influence of applying IFRS on European companies' profitability. The research focuses on adopting the new IFRS 16, specifically the accounting treatment of leases. The new standard introduces revolutionary changes in the treatment of leasing contracts. Many companies have moved away from IFRS, so it is essential to check the impact of IFRS on other companies. Design/Methodology/Approach: The study includes an analysis of two periods, before and after implementing IFRS 16 (leasing). In the study, we focus on specific sectors of economic activity. We examine the distributions of individual variables and compare the medians using parametric and non-parametric tests. The survey results indicate whether the implementation of IFRS 16 negatively affected the results of the companies. Findings: The study proves that adopting new IAS 16 related to leases does not negatively influence companies' profitability than the previous treatment of this financial position within financial statements. This study confirms that European companies improve profitability by adopting new modifications of the IAS 16. Practical Implications: The study represents a motive for managers to accept new accounting treatments of leases that will create tangible value and generate further economic benefits. Originality/Value: We examined companies implementing new assumptions for the recognition of leasing. Contrary to the numerous voices of practitioners pointing to the negative effects of the implementation of IFRS 16, we showed that the implementation of IFRS 16 did not significantly change the profitability of companies. Thus, it can be indicated that the primary objective of introducing IFRS 16, to organize the recognition of company assets, has been met.

Treatment of the rent payments in the value-added statement after CPC 06 (R2): an empirical-reflective analysis

“…Although there are studies on the effects of CPC 06 (R2) on balance sheet and on SPL Companies' (e.g. Campanha & Santos, 2020;Luty & Petković, 2021;Messias et al, 2022;, until the date of the present article, no studies have been found to discuss these effects on VAS. Thus, to fill this gap, the present article was elaborated whose objective was to analyze the effects of the adoption of CPC 06 (R2) on the rent line of the VAS and in the percentage of value-added distributed as rents.…”

“…Using a sample composed of financial statements from 2017 to 2019 of 996 companies, Luty and Petković (2021) tested the hypothesis that IFRS 16 has significantly impacted the profitability of European companies. It was confirmed that there was an improvement in the profitability of companies after the adoption of the standard.…”

“…The second milestone is the one of publications of the "a posteriori" type, which evaluate the effects of implementing the new lease recognition model required by the CPC 06 (R2). In this context there is quantitative research that aims to evaluate the impacts of the new standard in companies' reports and financial indicators (Campanha & Santos, 2020;Luty and Petković, 2021;Messias et al, 2022; and qualitative research that aim to present reflections about the new lease accounting model (Matos & Niyama, 2018;Visoto et al, 2022).…”

Modelling the Vulnerability of Financial Accounting Systems during Global Challenges: A Comparative Analysis

“…The most common cosmetic accounting occurs when determining the accounting treatment of depreciation (IAS 16) [34], revenue recognition (IFRS 15), the disposal of intangible assets (IAS 38) or fair value measurement (IFRS 13). The influence of applying IAS 16 on an entity's financial reporting was proven both theoretically and practically by [35], as the results of the revaluation of non-current assets to fair value may lead to a certain level of subjectivity in the determination of this value, but the impacts on the company's financial position, as well as its performance, are direct [36]. Additionally within the context of IAS 16, there is the alternative of changing depreciation regimes for fixed assets, a method that is decided by company management but that can significantly influence stakeholder decisions [37].…”

Tratamento dos pagamentos de aluguéis na demonstração do valor adicionado após o CPC 06 (R2): uma análise empírico-reflexiva

“…Apesar de existirem trabalhos sobre os efeitos do CPC 06 (R2) no balanço patrimonial e na DRE das empresas (e.g. Campanha & Santos, 2020;Luty & Petković, 2021;Messias et al, 2022;, até a data do presente artigo, não se encontraram pesquisas voltadas a debater tais efeitos na DVA. Assim, buscando preencher esta lacuna, elaborou-se o presente artigo cujo objetivo foi analisar os efeitos da adoção do CPC 06 (R2) na rubrica de aluguéis da DVA e no percentual de distribuição do valor adicionado como aluguéis.…”