AASB 16 Leases: Investor Perspectives

This is the second report of a project examining the introduction of AASB 16 Leases (AASB 16), the Australian equivalent of IFRS 16 Leases. In our first report1 we provided a snapshot of the preparer perspective of the process of AASB 16 implementation. In this report we provide results of our interview-based study of Australian professional investors, focussing on insights into the impact of the introduction of AASB 16 on investor decision making. Overall, the results suggest that investors are beginning to reap the benefits of AASB 16 expected by the standard-setters. Although, the impact of AASB 16 on investor decision making is dependent on an investor’s investment strategy and the types of companies that make up an investor’s investment portfolio. Investors are generally pleased with the enhanced transparency and comparability introduced by AASB 16. This result is consistent with our findings in the first report that the need for recognition of (almost) all leases on the balance sheet was perceived by preparers as an improvement to the quality of the underlying lease data, and thus the quality of the lease information reported in financial statements. However, there were mixed views expressed by investors as to whether the new standard delivers the asserted benefits for financial statement analysis of reducing the need for adjustments and non-GAAP disclosures. Investors also expressed a number of concerns and highlighted challenges arising from the introduction of AASB 16, including the impact on historical modelling and the interpretation of earnings before interest, taxation, depreciation and amortisation (EBITDA) as investors adapt to the new reporting regime. This report provides a snapshot of investor views on the new standard to help highlight some of the key benefits and challenges associated with interpreting the new requirements. The report also aims to provide insights as to how investors are applying the information in their investment decision-making processes. Such insights are expected to be useful for practitioners and standard-setters in understanding the hurdles investors are currently facing in their use of the information provided under AASB 16 to make informed investment decisions. Together with our first report, this establishes a holistic perspective of AASB 16 as viewed by both preparers and investors, which can inform the standard-setters post-implementation reviews and the ongoing policy discussions. https://www.cpaaustralia.com.au/-/media/project/cpa/corporate/documents/tools-and-resources/financial-reporting/leases-report-investor-perspectives.pdf?rev=ee6b3f3b53de447aaab3e4f614fb81b8