This report provides a critical review of the Australian Accounting Standard for lease financing, AASB 16, contrasting it with its predecessor, AASB 117. It delves into the motivations behind the shift to the new standard, analyzing the drawbacks of the previous lease accounting model where companies often classified leases as operating leases to manipulate financial statements, and how positive accounting theory contributed to this practice. The report also examines how AASB 16 enhances comparability between companies regarding leased assets and lease liabilities. Furthermore, it includes a case study of Woolworths Limited, an ASX-listed company, to illustrate the practical effects of the transition and the impact on financial reporting. The analysis underscores the importance of the new standard in providing a more accurate and transparent view of a company's financial position, thereby improving decision-making for stakeholders.
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