Consequences of a New Lease Standard - a qualitative study from a company and auditor perspective

Abstract

Background and discussion: The current lease standard, IAS 17, has been accused for causing an unfaithful accounting where the comparability between companies is unclear. In order to overcome the issues, the IASB and FASB have decided to introduce a new lease standard. In an exposure draft to the new standard, the most evident change is that the distinction between the operating and finance lease will be removed, which implies that all lease transactions will be shown on the balance sheet. This proposal is however highly disputed as it will have consequences for companies. Purpose: The purpose of the present study is to understand what consequences the new lease standard will have on companies using IFRS and operating lease, and to find out if companies have conducted any preparations. The study also aims to illuminate why companies lease and if they actively strive for a certain lease classification. Method: The present study is conducted with a qualitative approach. Interviews have been performed with five companies and one auditor. In the selection of the companies and the auditor, a purposive sampling method was used. Result and conclusions: The change of the lease standard will have consequences on companies using IFRS and operating leasing. The consequences will include increased balance sheets, changed debt structures, an increased administrative burden, a need to purchase new IT-systems, educational efforts and changes in companies’ lease behavior. How comprehensive these consequences will be is very individual. The companies in the present study are not particularly worried about the effects of the new lease standard. The findings suggest that not many preparations have been conducted. Further research: The authors of the present study believe that more qualitative research on the consequences of the new lease standard is beneficial, especially as there will be a re-exposure in 2012. However, succeeding research is suggested to take the perspective of auditors or analysts.