IFRS 16 LEASES: Deepdive into the New Accounting Standard From a Practical View and Example of the Upcoming Challenges Companies and Investors are Facing

Anders Lund & Lasse René Sørensen

Student thesis: Master thesis

Abstract

The Master Thesis topic is the new accounting standard IFRS 16 – Leases. Based on the standard, the thesis is seeking to enlighten the reader and be a practical guide with focus on some of the main issues companies, investors and other users of the financial statements are facing, when this accounting standard is being implemented. The standard is called one of the most significant changes to companies’ accounting standards and will definitely mark itself in companies’ balances. The standard is making up with off-sheet balances. Which are balances companies do not record in the Balance sheet under the current rules of IAS 17. The standard has been met with extreme awareness and debate received from companies, investors, auditors and other involved parties, why the way has been long for the standard to be finalized. The thesis is aiming at enlighting the view of an analyst and which areas and items they need to be aware of, going forward. The thesis is based on a case study by using the Danish company “DS Norden A/S”, that currently is using a business strategy for their fleet where these are funded through operational leases, which are classified as off-sheet balance. Therefore, this is making them sensitive to the new accounting standard as they will experience huge entry barriers by implementing IFRS 16. Based on the consequences calculated throughout the thesis, these will be explained from the view of an analyst and be discussed in how to prepare for these changes. The thesis will further show if the standard is influencing the enterprise value in a discounted cash flow model. Lastly, the thesis will consider if the standard is fulfilling its purpose. We have discovered that DS Norden will be highly affected by the new standard and there will be some huge marks on the company’s balance and profit & loss statement when the standard is being adapted. Further, the standard is only an accounting standard change and therefore will not impact the enterprise value of the company. However, the thesis is showing that based on the new balances, the model will be extremely sensitive for some key inputs why small variances in these will change the enterprise value significantly and that could impact the value from an analyst point of view if their judgement is incorrect.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages158
SupervisorsMichael Jakobsen