IFRS 16's Influence on Credit Rating

Mads Alsø Bjørkmann & Alexander Kofoed Johnsen

Student thesis: Master thesis

Abstract

In this thesis it is examined whether the new International Financial Reporting Standard 16 – Leases improves the financial reporting for the creditor. The examination shall help to clarify how the needs for financial information in the credit valuation process is met by the introduction of the IFRS 16 – Leases. Firstly, a thorough presentation of both IAS 17 and IFRS 16 is performed to create a basis for the thesis and compare the standards. The presentation is followed by an analysis and discussion of the content of IFRS 16. The discussion of the IFRS 16 focus on the advantages and disadvantages of the standard in a general accounting perspective. It has been found that the standard improves the basis for comparison and provides a more true and fair view of the lease assets and liabilities. However, the IFRS 16 also creates challenges and uncertainty related to especially statement of accounting estimates. To add an extra dimension to the analysis and reflect the numerical significance of the standard from a creditor’s point of view, companies are selected for a financial statement analysis based on company size and the expected influence on industries. The analysis shows a proportional relationship between business industry and IFRS 16’s influence on key figures. The influence is considered significant for creditor’s basis for decision. Nevertheless, the financial statement analysis shows some fluctuations in relation to what was expected which testifies that the financial statements includes individual circumstances and accounting estimates. The conclusions from the discussion of the IFRS 16 and the financial statement analysis are gathered in interviews with creditors from selected banks to uncover how the IFRS 16 affects the credit rating process. The IFRS 16 eliminates the need for a variety of manual corrections and reduce the time consumption. However, the standard does not solve all needs for corrections and the uncertainty of accounting estimates poses challenges which creditor do not know how to handle yet. The conclusion of the thesis states that the needs for financial information in the credit valuation process is met by the introduction of the IFRS 16 although it does not solve all needs and challenges. Despite the unsolved needs and challenges the thesis states that it is difficult to imagine how the financial information should be further improved since the process of credit valuation consists of individual circumstances that rely on manual decisions and sector individual adjustments which is difficult to standardize.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages119