Autumn 2020 - Accounting Standards & Governance: AASB 16 Leases Report

This report examines the impact of applying AASB 16, the new accounting standard for leases, on Qantas's financial statements. The analysis focuses on the removal of the distinction between operating and financial leases, a significant change impacting businesses in Australia. The report details the recognition of lease obligations as both assets and liabilities, leading to a more accurate reflection of a company's financial position. It also discusses the potential downsides, such as increased reporting complexity and higher initial lease expenses. The report further explores the effects on operating profit, EBITDA, and cash flow, ultimately providing a more comprehensive understanding of a company's financial performance for stakeholders, allowing them to make more informed decisions. The report also includes a bibliography of relevant sources used in the analysis of the impact of AASB 16.

Running head: ACCOUNTING STANDARDS AND GOVERNANCE
Accounting Standards and Governance
Name of the Student
Name of the University
Author Note

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ACCOUNTING STANDARDS AND GOVERNANCE
Table of Contents
Answer to Question 5...................................................................................................................2
Bibliography.................................................................................................................................3

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ACCOUNTING STANDARDS AND GOVERNANCE
Answer to Question 5
On an overall level, the impact of applying AASB 16 as a part of the financial statements
of Qantas is significant. Of all the major changes brought by this standard, the most significant
one is the removal of distinction between operating and financial leases. This is likely to have
some amount of impact on every business which is being carried out in the Australian territory.
Under the current Accounting Standards, the obligation to make future payments as a part of an
operating lease agreement is not recorded in the balance sheet. This is the case even if the
company is committed towards making such payments. This is a concern for the stakeholders as
it does not reflect the true financial position of the company. Recording the lease as both asset
and a liability would result in a more accurate presentation of the financial position of the
company. However, there are also a few downsides to this implementation. The complexity in
reporting and the hidden issues in reporting result in an increased risk in the financial and
commercial reporting of the entity. The lease expenses will also be higher in the initial years and
go down in the future periods. It will also impact the operating profit, EBITDA and the financial
costs of the entity. Hence, it will also lead to an increase in the financial cash flow and reduce the
operating cash flow. On an overall level, the users will have a better idea about the financial
performance of the company. The information provided will also be more useful to the
stakeholders and allow them to make more informed decisions.

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ACCOUNTING STANDARDS AND GOVERNANCE
Bibliography
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. The
Journal of New Business Ideas & Trends, 15(2), pp.1-11.
Shah, F., Davern, M., Hanlon, D. and Gyles, N., 2019. Implementing AASB 16 Leases: Are
Preparers Ready?