The Joint FASB/IASB Lease Project: Discussion And Industry Implications

Abstract

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">Over several decades, the Financial Accounting Standards Board and International Accounting Standards Board have enacted numerous changes to the controversial lease accounting rules. As currently prescribed, operating leases are treated as rental arrangements whereby the lessee does not record a liability - a situation generally referred to as off-balance sheet financing. In an attempt to increase transparency and comparability, the FASB and IASB will soon require all leases to be capitalized. This paper quantifies the impact of the new leasing standard on the financial statements and ratios of the firms and industries represented in the S&P 100 under a variety of discount rates. </span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

Managing Tax Dispute Due to IFRS-16 on the Retrofits Implementation in Indonesia

“…According to Watts & Zimmerman (28), three factors that explain the manager's motivation to be willing to follow the changing standards or to choose certain accounting standards are: 1) managers have the incentive to use different accounting methods to avoid problems (for example, reducing profit) so that it will not attract attention, 2) companies with higher loan ratio might choose the accounting standards that increase profit and avoid loan, 3) managers tend to maximize their benefits through compensations that connect to the accounting. Implications of changing the new accounting standard IFRS-16 might have a big effect towards the loan agreement, capital ratio, compliance cost, worker compensation benchmark, and IT system (9,10,23,29).Cornaggia et al, (30) found that the conventional loan ratio is significantly negative (approximately 1%) on operation lease that has the characteristics of the off-balance sheet, and will disappear under the IFRS-16. Whereas operation lease is empirically a significant factor in the company's capital structural right now (30).…”

“…The greater the diverse interpretation, the greater the risk of doing business in Indonesia is because the possibility of the tax official to seek opportunities and create a tax case for the taxpayer and even to do corruption is possibly higher. Economic consequences will obviously arise as it will change the financial statements and the key accounting ratios (8)(9)(10). Every company are facing the same consequences, including Indonesian companies, hence they need to mimic the impacts of the IFRS implementation.…”

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

“…In the study conducted by Kostolansky and Stanko (2011) for the purpose of measuring the impacts of new lease standard on the ratios and financial positions of the industries and companies represented in S&P 100 under various discounting ratios (3%, 6%, 9%), it has been detected that in the event of the reflection of the operating leases on the balance sheet, (1) there has been significant changes in the total liability/total asset and return on asset ratios of the companies and (2) the retail sector is the mostly affected sector with (43.16%) in the total liabilities, (20.3%) in the total assets and (14.77%) with the highest increase in total liability/total asset, (13.94%) with the highest decrease in the return on asset in sectoral context. Singh (2012) has examined the financial ratios of the companies having activities in the restaurant and retail sectors between the years 2006-2008 for the purpose of examining the impacts of the draft text.…”

The effect of the IFRS 16: constructive capitalization of operating leases in the Turkish retailing sector

“…Changes in financial ratios occur primarily in assets and liability relations, but they observe minor effects for the profitability ratios and market multiples often used for valuation purposes. Kostolansky and Stanko (2011) analyzed the leasing arrangements of the Standard and Poor's 100 (S&P 100) companies by extracting Form 10-K information from the Management Discussion and Analysis note, the financial statements, and the leasing footnotes and they found a material impact on specific firms and on specific industries. Double digit increases and decreases in firm specific financial ratios will occur.…”