Analysis of IFRS 16 Impacts on Lessees and Financial Statements

This report provides a detailed analysis of the impacts of IFRS 16 on lessees. It highlights the significant changes required by the new standard, including the recognition of lease assets and liabilities, which necessitates additional disclosures to help financial statement users understand the timing, amount, and uncertainties of cash flows related to leases. The report discusses the increased costs associated with educating employees and developing new processes for data collection and management. It also examines how these changes may affect financial ratios and debt covenants, potentially leading to higher borrowing costs. Furthermore, the report explores the implications for company policies, IT systems, and lease procurement, emphasizing the need for cross-departmental engagement and the importance of considering financial statement impacts when negotiating lease contracts. It also references the impact on data collection, IT systems, accounting policies, and lease procurement and negotiation, and provides references to the supporting research.

Running head: IMPACTS OF IFRS 16 ON LESSEES 1
Impacts of IFRS 16 on Lessees
Name
Institution

IMPACTS OF IFRS 16 ON LESSEES 2
IMPACTS OF IFRS 16 ON LESSEES
The new standard implementation shall require companies to do more than merely
converting its prevailing operating lease commitments disclosure in order to reflect lease assets
as well as liabilities. The standard calls for extra disclosures to assist the financial statements
users better fathom the timing, amount as well as uncertainties of cash-flow linked to any lease
(Warren, 2016). The qualitative and quantitative requirements will have to be disclosed by the
lessees including info regarding variable lease payments as well as options to renew as well as
terminate leases. Such changes will definitely have extra repercussions for the lessees.
The companies will have to incur costs for educating their workers to properly apply of
novel requirements as well as users of financial statement on requirements’ impacts. Companies
will have to develop supplemental process as well as controls for the collection of essential
information on leases. Accordingly, such reporting alterations may impact financial-ratios hence
cause implication for the covenants of debt (Warren, 2016). The changes might as well as
culminate in greater costs of borrowing for the leases with balance sheet appearing weaker with
inclusion of operating leases. The companies or business might take into consideration
purchasing rather than leasing since companies will be ending up with identical balance sheet
leverages from both.
The novel standard implementation will lead to changes to the company policies, control,
processes as well as information technology that support the lease accounting as well as
conceivably lease-procurement, lease and tax administration. The entities will further want to
take into consideration the financial statements implication alongside metrics while negotiating
their contracts which are, or could entail, leases (Sacarin, 2017)). Such actions shall need the
engagement from various departments in organization.

IMPACTS OF IFRS 16 ON LESSEES 3
In terms of data collection and ongoing data management; will help access the state of the
prevailing lease-contracts data management of the company including the data needed for
financial reporting purposes. In regards to IT system, controls and processes, the requirements of
new financial statement presentation together with disclosure will only be satisfied when
companies undertake the evaluation of whether they should update their prevailing systems or
the implementation of a novel system. Updating or selecting the lease information technology
system shall in a nutshell require input from both accounting and lease administration alongside
information technology functions, on the basis of the company’s ERP environment (Öztürk &
Serçemeli, 2016).
For accounting policies together with manuals; novel standard calls for the application of
judgment alongside estimates such as the evaluation of whether a given arrangement aligns to
lease definition might need judgment for specific arrangements like the ones with important
service constituent. Since reporting of lease assets together with liabilities shall now made on

IMPACTS OF IFRS 16 ON LESSEES 4
balance sheet, various estimates and judgments might receive increased scrutiny. Many policy
election will have to be made at transition and for post-transition accounting (Edeigba &
Amenkhienan, 2017). Lease procurement and negotiation; lessees will have to recognize the PV
(present value) of payment of leases over term for lease as the lease-liability on their balance
sheet. Lessees will hence have to reassess their corresponding needs as they negotiate their terms
and payment of leases.

IMPACTS OF IFRS 16 ON LESSEES 5
References
Edeigba, J., & Amenkhienan, F. (2017). The Influence of IFRS Adoption on Corporate
Transparency and Accountability: Evidence from New Zealand. Australasian
Accounting, Business and Finance Journal, 11(3), 3-19.
Öztürk, M., & Serçemeli, M. (2016). Impact of New Standard" IFRS 16 Leases" on Statement of
Financial Position and Key Ratios: A Case Study on an Airline Company in Turkey.
Business and Economics Research Journal, 7(4), 143.
Sacarin, M. (2017). IFRS 16 “Leases”–consequences on the financial statements and financial
indicators. The Audit Financiar journal, 15(145), 114-114.
Warren, C. M. (2016). The impact of International Accounting Standards Board
(IASB)/International Financial Reporting Standard 16 (IFRS 16). Property Management,
34(3).