IFRS 16 Leases and Standard IAS 17: A Comparison

Running Head: ACCOUNTING AND FINANCE
ACCOUNTING AND FINANCE
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1ACCOUNTING AND FINANCE
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
IFRS 16 Leases and Standard IAS 17....................................................................................2
Issues and Reasons behind Introducing New Standard..........................................................3
IFRS 16 Impact upon the Financial Statement......................................................................3
Conclusion..................................................................................................................................4
Reference....................................................................................................................................5

2ACCOUNTING AND FINANCE
Introduction
The new standards about the accounting of lease IFRS 16 has been issued and it has
been introduced with the few major changes. This new standard will help the companies in
not only recognizing the new assets and liabilities but it will also bring transparency to
balance sheet. Hence, under this assignment discussion will be based on the key accounting
requirements of IFRS 16 and comparison to IAS 17. Moreover, issues and the causes behind
the new standard introduction will also be discussed. Lastly, evaluation will be done on the of
IFRS 16 impact on the company’s financial statements with the assets under lease and
interpretations of those financial statements with the particular reference to the ratios.
Discussion
IFRS 16 Leases and Standard IAS 17
IFRS 16 has been issued in January 2016 and it becomes effective for those
companies, which report under IFRS from January 1 2019. It is the International Financing
Reporting Standard that is issued by IASB, which provides guidance on the accounting for
lease. The aim of the new standard is for reporting the information that helps in faithfully
representing the lease transactions and providing the basis for the financial statements users
for accessing the timing, amount and the uncertainty of the cash flows, which arises from
leases. Single lessee model of accounting has been introduced by the IFRS 16 for all the
leases with the term of more than the period of 12 months, until and unless the underlying
asset is of the lower value. Moreover, there is the requirement of the lessee to recognize the
right of use asset, which represents its right to using the underlying leased assets as well as
lease liability, which represents the obligations to make the payment of lease (Ifrs.org. 2019).
However, in case of IAS 17, it categories the leases into two parts. The first type is
finance lease, if the risks and the rewards that are incidental to the ownership are being