Operating lease decision and the impact of capitalization in a bank-oriented country

Inchausti, Begoña Giner; Pardo, Francisca

doi:10.1080/00036846.2016.1229416

Cited by 2 publications

(2 citation statements)

References 42 publications

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“…Finally, Giner and Pardo (2017), find that firms closer to breaching their covenants are also more inclined to choose operating leases as a financing product. This is because, as these transactions do not lead to a higher debt, they do not affect leverage ratios.…”

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confidence: 97%

Lease accounting

Díaz¹,

Hernández²,

Voicila³

2019

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Both the IASB and the FASB have recently issued new lease accounting standards (IFRS 16/Topic 842) that have been applied by entities since the beginning of fiscal year 2019. The new standards introduce an important change in the lessee’s accounting model, impacting entities’ accounting ratios, systems, internal controls, etc. Lessees will have to apply a capitalization model for almost all lease operations. In other words, nearly all lease operations will be shown on the lessee’s balance sheet, and there will be very few off-balance sheet leases.The aim of this paper is to explain the evolution of lease accounting standards from the beginning of the 20th century up until the present day, i.e. to analyze how this accounting area has evolved driven both by one of the basic accounting principles: “substance over form” (nowadays universally admitted), and also by the “utility paradigm”. While initially no leases were capitalized (following the legal form of the operations), subsequently (in the second stage) some of them did start to be capitalized (“finance leases”) under the assumption that they were very similar to financed purchases. Nowadays (under IFRS 16/Topic 842 – the third stage) almost all leases are capitalized for comparability and other reasons.This is the accounting area in which the “substance over form” principle has been most widely applied in modern accounting history. We fundamentally use historical information from primary sources (historical accounting standards, pronouncements of accounting standards issuers, historical research works, etc.) and we focus on US GAAP and IFRS standards.

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confidence: 97%

Lease accounting

Díaz¹,

Hernández²,

Voicila³

2019

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“…Previous studies use a unique rate for discounting lease payments (Beattie et al, 1998;Bennett & Bradbury, 2003;Duke et al, 2009;Ely, 1995;Imhoff & Lipe, 1997;Singh, 2012;Wong & Joshi, 2015). It can be used also for discount pensions and other provisions (F€ ulbier et al, 2008;Pardo & Giner, 2017); or as a benchmark rate plus a firm credit spread (Durocher, 2008;Fit o et al, 2013). Second, several models have been developed for estimating the LGD (with a given sample of loans at a certain date) (Akguen & Vanini, 2007;Silaghi et al, 2020), but none present a model to explain how a standard yield curve can be adjusted in order to reflect the correct LGD.…”

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confidence: 99%

A model proposal for IFRS 16 IBR adjustment based on bond market pricing

Delgado-Vaquero¹,

Díaz

Ramírez

2022

Economic Research-Ekonomska Istraživanja

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The Incremental Borrowing Rate (IBR) is generally used by companies for discounting future lease payments and calculating the value of the lease assets and liabilities under IFRS 16. According to this standard, leased asset must be considered as a collateral, and therefore the yield to be used should reflect an adequate Loss-Given Default (LGD), which may vary depending on the estimated recovery rate of the asset (machinery, real estate, vehicles, etc.). There is a lack of accounting and finance literature focused on analysing how a standard IBR should be adjusted to reflect the expected underlying asset LGD in line with IFRS principles. In this context, we propose a model that uses bond quoted information as a basis for introducing an adjustment to the standard "unsecured" IBR. The model consists of replicating the change in a certain bond yield when there is a change in the LGD (usually due to a change in the seniority level). We empirically demonstrate that the model works by using data from real bond quotations (97 outstanding bonds quoted on several secondary markets such as NY, Vienna, Frankfurt and London). The empirical analysis has been performed for two different time periods: pre-COVID 19 and post-COVID 19.

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Operating lease decision and the impact of capitalization in a bank-oriented country

Cited by 2 publications

References 42 publications

Lease accounting

Lease accounting

A model proposal for IFRS 16 IBR adjustment based on bond market pricing

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