How does implementing NIIF 16 affect financial indicators and fiscal effects?

Abstract

This paper studies whether adopting NIIF 16 Leasing modified financial indicators and the results related to taxes from non-financial companies listed in Ecuador, thus covering the comparability issue caused by operational leasing previously revealed off the financial statement. The analysis is based on the data economy linking the revenue recognition with transparency and comparability; in the debt contract theory which explains how revenue changes affect monitoring based on covenant margin and leverage; and in the tax-accounting conformity and the theory of temporary differences under NIC 12, which define the effects of deferred taxes from right-of-use assets and leasing liabilities (IASB, 2023b, 2023c). This empirical design includes audited annual reports and notes to financial statements from non-financial issuers listed in Ecuador’s stock market from 2017 to 2022. Unbalanced final panel includes 31 issuers and 162 company-year observations. Results evidence lower liquidity and asset escalated earnings, higher recognized leverage and EBITDA margins, increase of operational cash flow measures when leasing payments are classified as financing activities, and greater visibility of deferred leasing tax balance. All in all, NIIF 16 improves the visibility of the financial statement but requires recalibrating ratios and submitting a clearer tax reconciliation.