Abstract

Companies adopting the recent IFRS 16 would be required to capitalize all their previous “off-balancesheet” operating leases as finance leases. This dramatic shift is expected to have a significant effect on major financial statements’ ratios which indicate the level of profitability, financial risk, and liquidity of the company. This review will look at the main financial statements’ ratios, and at the expected effect that the switch from the superseded IAS 17 to IFRS 16 will have on them.

Keywords: IFRS 16; Finance leases; Off-balance-sheet leases; IAS 17; Financial statements’ ratios

Abbreviations: IFRS: International Financial Reporting Standard; IASB: International Accounting Standards Board; IAS: International Accounting Standard; EBITDA: Earnings Before Interest, Tax, Depreciation, and Amortization; ASC: Accounting Standard Codification; US GAAP: United States Generally Accepted Accounting Principles