The Impact of IFRS 16 Lease Implementation on Financial Performance and Taxation: Evidence from Ecuador

Abstract

IFRS 16 Leases, which became effective in 2019, proposes a single recognition mechanism for lease transactions. Lessees who have control over the underlying asset must record this arrangement in their financial statements, recognizing both the right-of-use asset and the lease liability. This norm affects the lessee's accounting and financial treatment because these economic facts were previously ignored and must now be included in the balance sheet. Furthermore, this circumstance has caused significant changes in the financial parameters of 87 firms investigated in Ecuador. The results reveal that the rise in current liabilities caused by the recognition of the account payable for the financial lease has a considerable negative impact on liquidity indicators. Additionally, measures such as ROA and ROE decreased, but the operating margin increased. Finally, the tax legislation should include rules for recognizing tax assets and liabilities accumulated