An Empirical Study of the Accounting Practice of Leases: Which Impact does IFRS 16 have on the True and Fair View of Lessee's Financial Statement?

Kirstine Bruun Levi & Maria Hagendam Sørensen

Student thesis: Master thesis


The preparation of IFRS 16 is a result of the criticism of the former standard, IAS 17. The criticism has primarily been about the lacking comparability between other entities. Applying IAS 17 required the lessee to categorize its leases in either operational or financial leases of which only financial leases appeared in the balance sheet. With IFRS 16 this categorization is eliminated. All leasing contracts consequently must be included in the financial statement. The purpose of this master thesis is to analyze IFRS 16’s impact on the accounting practices for leases including sale-and-leaseback transactions. Furthermore, the purpose is to examine whether the new standard gives a fair presentation of the lessee’s financial statement. The results of this thesis are based on 5 field interviews and a financial statement analysis of a fictitious financial statement. The thesis displays that IFRS 16 has had a significant impact on the accounting practices for saleand-leaseback transactions. The accounting practice is considered to provide a more faithful representation of the lessee’s financial statement, which is due to the lessee having its capital structure reflected and the recognized gain or loss only reflects the rights transferred to the buyer-lessor. The thesis concludes that IFRS 16 creates greater comparability of the balance sheet. Conversely, the comparability of the income statement and cash flow statement is reduced. In addition to this the user’s understanding of the accounting procedure decreases due to the complexity of IFRS 16. On the other hand, IFRS 16 provides a more faithful presentation of the lessee’s financial position as more relevant information is included. In conclusion based on the IASB’s framework IFRS 16 provides a fair presentation of the lessee’s financial statement in relation to IAS 17.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2021
Number of pages121