The Effect of Applying the New IFRS 16 “Leases” on Financial Statements: An Empirical Analysis on the Airline Industry in the Middle East
Bassam Maali *

German Jordanian University*


Abstract: In 2016, the International Accounting Standards Board issued IFRS ”Leases” to replace IAS 17 starting from year 2019. The new standard was mainly issued to overcome the problem of off-balance sheet financing resulting from the use of operating leases. IFRS 16 requires the lessee to capitalize almost all lease contracts by recognizing a “right of use” asset and a “lease liability” in its statement of financial position. The airline industry will be one of the most affected industries because of the significant dependence on operating leases. This paper seeks to analyse the effect of implementing the new standard on the financial statements and basic financial ratio of six major airline companies in the Middle East by using the Constructive Lease Capitalization Approach. The findings of this  study reveal that the airline industry in the Middle East will significantly affected by the application of the new standard. The findings of the analysis show a  significant increase in the assets and liabilities of these companies. The combined statement of financial position for the six companies will add more than 17 billion US dollar in liabilities. The assets of these companies would increase by 24% and their liabilities will increase by 51%.  OF course, this largely affects different financial ratios, especially Debt to Assets and Debt to Equity.

Keywords: Leases, IFRS 16, Airline Industry.




International Institute of Organized Research
Thomson Reuter’s Emerging Sources Citation Index (ESCI)


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