Accounting and Reporting of Lease Transactions by the Lessee within the Framework of TFRS 16 Leases Standard

Abstract

IAS 17, Accounting for Leases, was first published in 1982 by International Accounting Standards Committee. IFRS 16 was announced in January 2016, to be applied to leases starting from 1 January 2019. While the standards differ in their specific requirements, each takes the "ownership" approach when deciding whether a lease should be capitalized. The fact that companies are trying to structure their lease contracts in a way that bypasses the capitalization criteria during the process confirms the need for the publication of IFRS 16 Standard. Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of this Standard. The objective of the revision is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents leasing transactions. IFRS 16, transfers leasing transactions to the financial statements, and it has ceased to be an off-balance sheet financing method, the faithful representation principle has been met, and thus, reliable information has been provided to the readers of the financial statements. In this way, potential investors, financial analysts, financial statement readers will be able to evaluate the financial position, financial performance and cash flows of an entity more accurately and transparently. IFRS 16, requires capitalization of almost all leasing contracts. In long-term leases, the distinction between operating leases and financial leases disappears. In accordance with the new standard, lessees are required to capitalize all lease contracts as assets and liabilities. This study aims to reveal how the financial statements of the lessees will be affected if operating leases are included in the financial statements with IFRS 16, by comparing with the IAS 17 with the help of examples. As a result of the study, it has been found that, IFRS 16 ensures the entities to report financial information, in a faithfully, accurately and transparently way compared to the IAS 17.