Impact of International Financial Reporting Standard (Ifrs-16) On Financial Performance of Companies: A Case of Pakistan Airline Industry

Abstract

The Standard of the lease, IFRS 16, was introduced by the International Accounting Standards Board (IASB) on 16th January and outdated IAS 17 contracts for reporting tenures starting on or afterward 1st January 2019. This study has focused on determining the effect of IFRS-16 on financial performance of companies in airline industry of Pakistan that is heavily leased. The variables considered in this study include Operating Lease under IFRS-16, EBITDA, current ratio, quick ratio and asset turnover ratio. The financial performance has been measured through liquidity in which current and quick ratio has been considered while the profitability has been measured with the help of EBITDA. On the other hand, the efficiency of the companies has been measured with the help of asset turnover ratio. The study is quantitative in nature in which the data has been gathered from secondary sources through annual reports and Reuters. With respect to the analysis, the data has been analysed using descriptive statistics, correlation analysis and GLS model which was applied after testing the fixed and random effect of model. The results of the study determined that there is significant and negative effect of Operating Lease under IFRS-16 over current ration, quick ratio and asset turnover ratio while the effect of Operating Lease under IFRS-16 was significant and positive over EBITDA. The project is significantly done to critically evaluate the changes after the inception of IFRS-16 significantly beneficial for investors, financial institutions and especially the companies involved in heavy leases