Accounting Standard and Governance

Running head: ACCOUNTING STANDARD AND GOVERNANCE
Accounting standard and governance
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ACCOUNTING STANDARD AND GOVERNANCE
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Description of the reason of changing leasing standard:...........................................................3
Implication of leasing standard AASB 16:............................................................................4
Advantages and disadvantages of AASB 16 for BlueScope and Boral limited:....................4
Identification of impact of AASB 16 on the income statement, balance sheet and cash flow
statement of BlueScope and Boral limited:................................................................................6
Summarizing the report of environmental and social aspects of BlueScope and Boral limited:
....................................................................................................................................................8
Evaluating the usefulness of AASB 16 to the users of financial statement of companies:.......9
Summarizing the findings:.........................................................................................................9
References list:.........................................................................................................................11
Appendix:.................................................................................................................................13

ACCOUNTING STANDARD AND GOVERNANCE
Introduction:
The report is prepared for demonstrating the evaluation of the new lease standard that
is AASB 16 on the financial statements of companies. The reason why the leasing standard
has changed and how the standard would change the reporting of the statements. In addition
to this, the advantages and disadvantages of the introduced standard have been presented. For
the purpose of analysis, the two companies have been chosen which includes BlueScope Steel
limited and Boral limited. Furthermore, the usefulness of AASB 16 to the users of financial
statements is evaluated. The objective of AASB 16 is to ensure that relevant information is
provided to the lessees and lessors in a manner which depicts faithful representation of the
transactions related to lease (Ey.com 2019). Such information is helpful to the financial
statement users as they are able to assess the impact of lease on different financial statements.
The reporting of the environmental and social aspect of the two companies and the existence
of any regulatory requirement governing such aspects is ascertained.
Discussion:
Description of the reason of changing leasing standard:
Substantial changes have been made to the lease accounting by AASB (Australia
accounting standard board). The obligation to make future payments under the current
accounting standard of lease is not presented in the balance sheet. However, the company is
committed to make payment of those future expenditures. The absence of the relevant
element of lease from the balance sheet is of great concern to the stakeholders because the
true financial position of the company is not accurately reflected (Pwc.com 2019). The lease
transactions concerning lease under the existing rules is accounted as finance or operating
lease depending upon the tests and complex rules and the use of bright lines result in nothing
being recognized in the statement of financial position of companies (Li and Yang 2015).

ACCOUNTING STANDARD AND GOVERNANCE
One of the major flaws of the previous lease standard that has resulted in the introduction of
new standard is the incentives of company to classify the contracts as operating as the impact
of financial and operating lease is different and such treatment has major consequences on the
key financial ratios. The balance sheet and key financial rations would be heavily impacted
by the adoption of new standard for entities that has substantial amount of operating lease
(Aasb.gov.au 2019).
Implication of leasing standard AASB 16:
The new leasing standard is likely to affect almost all the business in every way and
such change would result in inclusion of the right of use asset and liabilities on the balance
sheet. For the lessees, the distinction between operating and financing lease is eliminated and
for all leases, there will be reorganization of lease liability and a new lease asset (Giner and
Pardo 2018). Therefore, the cost of using the leases assets and its associated benefits would
be reflected on the balance sheet. The financial statements would be more accurately
reflected as all the liabilities are fully reflected. Furthermore, the earning profiles of entities
would be impacted in the absence of straight line rental, expense and charging higher expense
in early years and less in later years. When determining the lease liability and the size of the
right to use asset, it would be required by the entities to have comprehensive evaluations of
the same (Aasb.gov.au 2019).
Advantages and disadvantages of AASB 16 for BlueScope and Boral limited:
The companies are positively as well as negatively impacted with the introduction of
new leas standard.
 With the inclusion of right to assets on the balance sheet will increase the total assets
value and enable the companies to qualify as large proprietary companies
(Goshunovaa and Kirpikovb 2016).