Converting financial statements: operating to capitalised leases

Abstract

Purpose The purpose of this paper is to examine how capitalising operating leases under IFRS 16/AASB 16 affects the financial statements and value relevance of financial information. In doing so, limitations of exiting methods are highlighted and improved upon. Design/methodology/approach Imhoff et al.’s (1991) constructive method for capitalising operating leases is improved upon and used to restate the financial statements of 165 S&P/ASX200 companies. The financial position, key ratios and value relevance are tested for significant differences. Findings The results provide evidence that capitalising operating leases affects financial statements and value relevance. Originality/value Imhoff et al.’s (1991) constructive method has been refined, providing an improved method for capitalising operating leases than the one that has been used in the past. From a practical perspective, this research provides evidence supporting the “right-of-use” method proposed by the IASB which will see previous off-balance-sheet leases recognised.

The Impact of IFRS 16 (PSAK 73) Implementation on Key Financial Ratios: An Evidence from Indonesia

“…On the other hand, Return-on-Equity (ROE) experienced a very sharp increase of 5,492.691% due to a very significant decrease of equity in the company's financial position statement. This result is consistent with the research conducted by [1] [17] [18] [22] [24] [25] [27]. However, this study is not consistent with [3] and [21].…”

“…This decrease occurred due to the value of sales which was constant while both total assets and total assets increased significantly. These results are consistent with [23] and [27]. Cash Flow from Operations (CFO) and Interest Coverage Ratio (ICR) are used to measure liquidity ratios.…”

“…The DER ratio increased very significantly due to an increase in total liabilities while the company's total equity decreased, but the DAR ratio did not increase significantly, because the increase in total liabilities and total assets did not differ too greatly. The results of this study are consistent with [17] [21] [22] [24] [25] [27]. On the other hand, this study is not in line with [1] and [3].…”

IFRS 16 - Leases: Challenges, Perspectives and Implications in the Light of Substance Over Form

“…Do ponto de vista da melhoria da transparência das informações para decisões de investimento, o estudo forneceu a primeira evidência australiana sobre o impacto da adoção do novo padrão. Os autores acreditam que o método de direito de uso aplicado na IFRS 16 é consistente com a presente estrutura conceitual e garante que as operações de arrendamento mercantil sejam fielmente incorporadas nas demonstrações financeiras, aumentando a transparência das práticas contábeis e reduzindo a capacidade de manipulação de dados (Xu, Davidson & Cheong, 2017).…”

Analysis of the Financial Impacts of the First Implementation of Ifrs 16 Leases Standard on the Companies Listed in Bist

“…After recognizing unrecorded assets and liabilities with respect to operating leases, decreases in ROA and current ratio, increases in ROE and financial leverage were identified. Xu, Davidson, and Cheong (2017) worked on the capitalization of operating leases by restating the financial statements of 165 S&P/ASX200 companies. All assets, liabilities, and all key financial ratios except the return on equity were affected by capitalization.…”