Analysis of IFRS 16 and its Impact on Financial Reporting

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Advanced Financial Accounting
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Contents
Assessment Task 2......................................................................................................................................3
1...............................................................................................................................................................3
2...............................................................................................................................................................4
3...............................................................................................................................................................5
4...............................................................................................................................................................6
5...............................................................................................................................................................7
References...................................................................................................................................................8
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Assessment Task 2
1.
The chairperson is one of the people of top-level management, it is not agreed with the economic
reality that is shown by the IASB, as the chairperson of IASB, because proper records are not
been maintained by the company as the given information is saying that around 85% of the lease
is based on the operation lease but it hasn't recorded in the books of accounts this clearly shows
that the nowadays accounting is not been properly reflected and also not been properly recorded.
As the time is changed people usually do window dressing of their accounts so that they can hide
the loss and also able to show more profit which results in the increasing the goodwill of the
company but it cannot be done for long term as at some time it will lead to a downfall of the
company. So, proper maintenance of accounts should be done because to last for the long term
and also it helps in the long term existing of the company. The given case study also shows that
around 3 trillion euros worth of lease in every sector but mostly in the sector of airlines,
industries, shipping, etc. there is also a doubt whether the company is recording the liabilities at
its actual or not (Botzem, 2015).
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2.
As at the time of the financial crisis, various retailers get bankrupt as the reason was that they
were unable to adjust to the changing scenarios and also unable to adopt the new changes in the
economic reality. It shows that they all consist of long term operational lease associated with
their business and also it is related to the balance sheet (IASB, 2019). As in the given case study,
it was studied that around 66 times more than the debt are recorded in the balance sheet which
means that it is a very long amount that should be recorded as a fraud amount in the balance
sheet. It also shows that the current accounts based on the lease are also not are comparable
(Eisenschmidt and Schmidt, 2016). Usually, books of accounts of all the companies are based on
the accounting rules and guidelines and also for lease IFRS 16 has been formed. It also provides
various methods of how to record the lease in the accounts and also what its effect on the balance
sheet. It also shows proper reflecting of the amount which reduces the window dressing so that
proper report can be made and long term survival can be made possible. It also helps the
company to earn a legal profit and also able to increase the business. The multiplier is very much
which also affects the final accounts of the company as it will create a negative impact on the
financial position because it is unable to analyze how to adjust such a long multiplier (Botzem,
2015).
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3.
As the airline is one of the biggest that is mostly based on the lifts which means that most of the
fleets are on the lease for the long term as it requires a huge investment. As airline company is
not been included in the competitor as no other can able to compare. As the financial obligations
are mostly similar (IASB, 2019). The main difference is that there is no playing field between the
companies. As the lease standards are made are developed according to the needs in the market.
As the technology is changing which means that the lease standards should be get updated
according to the need. All the problems that are faced by the lease company should be resolved
when new standards are to be launched. The entireleases that are issued should be recorded as
per its nature such as assets and liabilities as per the lease. It also shows the reflection of the
economics that is underlying. As the changes affect very much to the accounting and also create
roughly half of all the companies that are listed and will not be much popular as it is not known
by anyone. The chairperson is the head of the IASB gives the best suggestion and also it shows a
perfect view of the answer and also gives satisfaction with the answer that there is no level of
playing field between the airline companies (Botzem, 2015).
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4.
As the new changes in the standards will not get popular or known by everyone. As there is a
change in the standard of accounting will also get controversial and also a negative impact on the
cost system and also the economy of the company. As new changes are very difficult to
understand and also it is very difficult to implement as it brings lots of changes and also it will
affect the cost as new changes require more effort as compare to old standards and also a new
knowledge should be gain. IFRS 16 deals with the lease and every year it is getting updated by
the IFRS committee so that the changes can be done according to need in the market and also to
match with the market requirement. The IASB is working as the watches dog as it keeps the eyes
on the changes that are made by IFRS 16 in the lease. IASB also helps in analyzing the risk
associated with the lease. It also helps in publishing the report after analyzing the changes that
are made in the standard (Botzem, 2015).
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5.
As the new standards are updated which help in managing the risk and also helps in controlling
the cost. The main of the IFRS 16 is not to keep out all the leasing industries from the business.
The lease is one of the most flexible sources that are part of the finance. Lease helps in reducing
the risk as it attracts the finance so that it reduces the risk of owning the assets. The accounting
which is based on the cosmetic benefits of the lease will automatically disappear, so the real
business benefits will not get change as the change in the standard. As the new standard requires
the cost to update so that it should be getting a minimum while making changes in the standard.
It means that the company should not take for short term or small investment. The new standards
will give benefits to small companies. As the new standards help in minimizing the cost which
means that it will give more benefits. The new standards that are based on the lease will show
better investment information and also a decision by the investors. It also helps in improving
capital allocationwhich helps in the benefits of the growth (IASB, 2019).
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References
 Botzem, S., 2015. The European Union’s role in International Economic Fora, Paper 7:
The IASB. IP/A/ECON/2014–15 PE 592. 196, Directorate General for Internal Policies,
Policy Department A: Economic and Scientific Policy, June. Brussels: European
Parliament.
 Eisenschmidt, K. and Schmidt, M., 2016. Responsiveness as a challenge for the
legitimacy of the IASB-An evaluation of current international accounting regulation and
alternative approaches. Available at SSRN 2772445.
 Giner, B., and Pardo, F., 2018. The Value Relevance of Operating Lease Liabilities:
Economic Effects of IFRS 16. Australian Accounting Review, 28(4), pp.496-511.
 IASB, I., 2019. 16. 2005. International Accounting Standards. List of standards–IAS 16.
International Accounting Standards Board.
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