GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios

Review of Business & Finance Studies, v. 7 (1) p. 93-104

12 Pages Posted: 29 Jan 2016

See all articles by Thomas Buchman

Thomas Buchman

University of Colorado

Peter Harris

New York Institute of Technology

Michelle Liu

CUNY Hunter College

Date Written: 2016

Abstract

As of January 1, 2013, most of the world financial market economies are using International Reporting Standards (IFRS) as the required framework for financial statements. A non-comprehensive listing includes the European Union Countries, Canada, Australia, Japan and New Zealand. In the United States, US Generally Accepted Accounting Principles (GAAP) is still required but adoption of IFRS has support of many accounting firms and professional organizations and is under consideration by the SEC. This case study focuses on differences in the treatment of leases and the impact of these differences on financial statements and selected financial ratios. Students take GAAP financial statements and prepare an IFRS based balance sheet, cash flow statement and income statement. It is necessary to understand both GAAP and IFRS rules regarding leases to address this case study. This case study is suitable for use at both the undergraduate and graduate levels. It may be used in an Intermediate Accounting II, Accounting Theory, Financial Statement Analysis or an International Accounting class, as well as an Investment Finance course. The case can be offered as an individual case study or as a group project.

Keywords: US GAAP, IFRS, Capital Lease, Operating Lease, Financing Lease, Ratios

JEL Classification: M4, M41, M42, M48, M49

Suggested Citation

Buchman, Thomas and Harris, Peter and Liu, Michelle, GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios (2016). Review of Business & Finance Studies, v. 7 (1) p. 93-104, Available at SSRN: https://ssrn.com/abstract=2664824

Thomas Buchman (Contact Author)

University of Colorado ( email )

Peter Harris

New York Institute of Technology ( email )

Kingdom of Bahrain
New York, NY 10023
United States

Michelle Liu

CUNY Hunter College ( email )

695 Park Avenue
New York, NY 10065
United States

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