This thesis deals with the accounting for lease contracts. The current standard for accounting for lease contracts in IAS 17 has been criticized in accounting circles and thus a project between IASB and FASB of developing a new standard for accounting for leases started in 2006. The project of developing a new standard for accounting for leases has so far resulted in the exposure of an Exposure Draft in august 2010 containing a draft for a new standard for lease accounting. During the comment period the project group received comprehensive feedback in more than 700 comment letters. Many of the comment letters were skeptical towards the drafted new standard for lease accounting. Due to the many skeptical comment letters the project group has worked on preparing a second Exposure Draft which is expected for release within the first six months of 2013. However the project group has during the process of preparing a second Exposure Draft published a number of tentative decisions. The main purpose of this thesis is to examine and analyze how the tentative decisions, decided at this point, will effect external financial reporting in the annual report and whether the tentative decisions will solve the weaknesses and problems in the current standard for lease accounting. Weaknesses and problems with the current standard for lease accounting in IAS 17 are identified in the first part of the thesis based on an examination of IAS 17. The identified weaknesses and problems with the current standard can mainly be blamed towards the classification between operational and financial lease contracts in the current standard. The thesis concludes that accounting for operational leases in the current standard is inconsistent with The Conceptual Framework for Financial Reporting issued by IASB and that preparers of external financial reporting might have an incentive to exploit the current standard and falsely classify as many lease contracts as possible as operational lease. Also the thesis considers that the current standard is (too) complex and non‐comparable. Second part of the thesis examines the tentative decisions towards a new standard for lease accounting, decided at this point, and assesses whether the tentative decision will solve the identified weaknesses and problems with the current standard. Based on the tentative decision this thesis concludes that most of the identified weaknesses and problems with the current standard for lease accounting will be solved; some will be fully solved while other only will be solved at some degree. Third part of the thesis performs an empirical analysis of the effects of the tentative decisions on external financial reporting in the annual report. The analysis is performed for 14 Danish companies from the C20‐index based on a modified ILW‐model and analyses the effect on selected key figures in the annual report and key ratios related to profitability and financial risk. The result of the empirical analysis proves that the tentative decisions will have a significant effect on the companies in the analysis. The companies will on average experience an increase in total assets and net invested capital on 6 % respectively 10 % and a 64 % increase in net financial debt. The key ratios are affected by an average decrease in profitability on 8 % and a significant negative effect on key ratios related to measurement of the financial risk. In conclusions the thesis concludes that the tentative decision will fully or at some point solve the identified weaknesses and problems and that the effects on external financial reporting will be, on average, a decrease in key figures related to profitability and a negative effect on financial risk key ratios.
|Educations||MSc in Auditing, (Graduate Programme) Final Thesis|
|Number of pages||131|