Open Access

Leyla Alakbarzade

• The lease standard IAS 17 Lease has been long criticized because of the complicated lease classifications, which allows a huge amount of off-balance sheet leased assets and liabilities. After longThe lease standard IAS 17 Lease has been long criticized because of the complicated lease classifications, which allows a huge amount of off-balance sheet leased assets and liabilities. After long lasting discussions IASB issued a new lease standard IFRS 16, which will have an effective date of 1 January 2019. According to the new standard, lessee has to recognize all lease activities on the balance sheet, therefore it is expected to have great impact on leasing-intensive industries. This master thesis explains the scope of upcoming standard, the changes it will bring and the impact it will make on financial performance indicators of certain companies. This research presents theoretical background and framework of IAS 17 and IFRS 16, and analyses the new rules and changes in the previous regulation. Furthermore, a research is conducted by applying constructive capitalization method to analyze the expected impact of IFRS 16 on the financial statements and key financial figures of two largest German companies listed on DAX exchange (Imhoff et al.,1991). For the purpose of research, annual consolidated financial statements and relevant footnotes of two companies for the year 2017 were retrieved. The results of two sample companies are used to analyze the effect of IFRS 16 on balance sheet and key financial ratios, where we verify the chemical industry to be the least affected. At the same time the airline industry is affected moderately in comparison with the chemical industry. However, the impact is not as significant as previous research results presented by IFRS Foundation (2016). When capitalizing off-balance sheet lease items, we find evidence, that the most significant effect of the new standard is expected to be an increase in lease assets and liabilities for both companies. However, the effect on the equity will be insignificant. As a result of the measurement of some financial ratios, such as Debt to Equity, Debt to Asset, Return on Asset and Return on Equity for two companies, we recognized that the effect of the new standard can vary from company to company within the same industry. It is highly dependent on how intensive the company uses lease financing.…