Exploring the Effects of International Financial Reporting Standard 16 on Retail Industry: The Case Study of W Company

• Main Authors: Yeh, Fang-Chi, 葉芳琪
• Other Authors: Chen, Huei-Ling
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/kwn33v

碩士 === 國立臺灣師範大學 === 高階經理人企業管理碩士在職專班(EMBA) === 105 === Compared to IAS 17 Leases, IFRS 16 has two major differences including the definition of a lease, and the accounting treatment for a lease. In IFRS 16, a lease is defined on the basis whether the lessee has the right to control the use of an identified asset for a period of time. IFRS 16 also eliminates the distinction of operating leases and finance leases for a lessee. Instead all leases are treated in a similar way to finance lease. The adoption of IFRS 16 can be expected to have a significant impact on industries which have previously kept a large proportion of their financing off-balance sheet in the form of operating leases. The objective of this paper is to investigate how IFRS 16 affects financial statements and financial ratios of a company using a retailer in supermarket chain industry as a case study. According to the simulation results, the possible impact of adopting IFRS 16 on lessees include: (1) Lease expense classification shifts from rent expense in operating expenses to depreciation expense in operating expenses and interest expenses in financial costs. Thus, operating profits and earnings before interest, taxes, depreciation, and amortization (EBITDA) increase. (2) More lease expense is recognized at the first year of adoption. Net income at the first year will be lower than the previous year. (3) An increase in recognized assets and liabilities affect financial ratios in terms of capital structures, activity, solvency, and profitability. (4) Net cash flows has no changes, however, cash from operations and financing activity outflows will change. (5) For any changes in lease period or terms, the lease liability is required to be reassessed using appropriate discount rates in order to reflect adjustments in right-of-use assets.