The Effect of Transition from IAS 17 to IFRS 16 — Based on the Case Study of Tesco

Leasing is an economic practice in which the lessor borrows a physical item for a certain fee. The lessee is given the right to use the item for a certain period of time. Leasing is an important source of financing for economic units and is of certain importance as an alternative to financing assets through purchase or borrowing. In 2016, the International Accounting Standards Board announced that starting from 2019, the measurement of leases will be changed from International Accounting Standards (IAS 17) to International Financial Report Standard (IFRS 16), which will terminate the off-balance sheet financing of the lessee by recognizing all leases in the lessee’s budget. This paper analyzes the specific impact of IFRS 16 “leasing” in practice. The author summarizes the characteristics of IAS 17 and the problems existing in IAS 17. Following the application of the IFRS 16, subsequent measurement rule changes resulting from the change in the lease classification definition will result in significant changes in the company’s financial statements. By analyzing the data changes in specific cases and the impact on user behavior, this paper verifies the correctness of previous theoretical research and analysis, and tests whether the new criteria will change as expected in practical application. The author chooses Tesco, Britain’s largest retailer, as a sample company here to give a full picture of the problem. Specifically, this paper analyzes the retrospective restatement of Tesco’s 2019 annual report and attempts to alert others to the actions the company has taken to address the adoption and relevance of IFRS 16.