The effects of adoption of IFRS 16 on financial reports, financial measures and taxation - Evidence from the Swedish retail industry

Abstract: This paper examines the transition from IAS 17 to IFRS 16 in terms of the effects on the financial report, financial ratios, and taxation for various Swedish retail companies. The study was carried out as a multiple case study were accounting data was extracted from annual reports. Then, the ‘constructive lease capitalization’ method was applied to determine the effect of the adoption of IFRS 16. The results were then analysed in the light of relevant accounting theories such as the ‘moral hazard’ theory as well as ‘accounting characteristics’. The results showed that most of the case companies will experience negative impact on their accounting ratios at the beginning of the lease term, as the adoption of IFRS 16 has been made, however, as the lease term progresses, most ratios will converge to the reported values under IAS 17. Furthermore, a few tax implications could be observed, mainly related to deferred taxes, however, apart from this, no specific changes were observed. The main contribution of this study is that it provides increased knowledge on how the retail industry is affected from the transition from IAS 17 to IFRS 16, which is one of the industries experiencing the greatest effect from the adoption of IFRS 16.