IFRS 16 - Leases

Anders Vestergård Nielsen

Student thesis: Master thesis


This thesis will outline the accounting principles for leasing from a lessee’s perspective under the previous leasing standard, IAS 17, and the new standard IFRS 16 and discuss the most important differences between the two. Furthermore, the thesis will analyze how ten publicly listed Danish companies have chosen to implement the standard and how it has impacted their financial reporting. The thesis will also explore whether the companies have simply provided the information they are required to by regulation, or whether they have provided their stakeholder with an amount information that does the materiality of the standard justice in respect to each individual company. One of the most significant changes to the accounting principles for leasing with the transition to IFRS 16 is that the standard abandons the concept of operating and financial leases for lessees. Instead the standard requires the lessee to recognize a lease liability and a corresponding right-of-use asset, largely similar to the previous accounting principle for financial leases. However, under IFRS 16 variable lease payments dependent on an index or an interest rate should now be recognized as part of the lease liability, unlike previously. This also requires the lessee to periodically adjust its recognized assets and liabilities accordingly once the value of index changes, hence the value of lease liabilities and right-of-use assets recognized under IFRS 16 are much more dynamic than what has previously been the case for finance leases. When analyzing the financial statements of the sampled Danish companies, it was found that all the companies in the sample had chosen to implement IFRS 16 using the modified retrospective approach. This finding might seem intuitive, as the other option for the companies would be to go with the full retrospective approach and this precludes the companies from using many exemptions when first implementing IFRS 16 as these are tied to the modified retrospective approach, thus making the implementation of IFRS 16 more of a burden if a company went with the full retrospective approach. Looking at the financial impact on the sample companies, most companies experienced an increase of total assets between 4-6%, whereas the companies in the transport sector experienced increases around 10% and one company even more than 20%. This is in line with Effects Analysis released by the IASB, which tried to estimate, amongst other things, the overall increases that companies in various sectors would see as a result of IFRS 16. The reason for the transport sector to see increases of this magnitude is due to the wide use of operating leases in the industry. The standards financial impact for four of the sample companies was compared to how each company overall communicated about IFRS 16 in their annual report for 2018, leading up to the implementation, and the quarterly reports for 2019, once the new standard was in force. The thesis found that three out of the four analyzed companies provided their stakeholders with adequate information on the standard, when taking its materiality to each individual company into consideration.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2019
Number of pages63