The Impact of Applying the International Financial Reporting Standard IFRS 16 Related to Lease Contracts on the Financial Statements of Lessees in the Algerian Environment: A Case Study of an Economic Institution Operating in the Construction Sector

Abstract

This study primarily aims to identify the potential impacts of adopting the requirements of the International Financial Reporting Standard IFRS 16 related to lease contracts on the financial statements of an economic institution operating in the construction sector. To achieve these objectives, a descriptive-analytical approach was employed, wherein the requirements of IFRS 16 were applied to the lease contracts concluded by the institution concerning essential assets in its operations. The study then identified the impact of applying this standard on the financial statements, focusing on the balance sheet and income statement for the period from 2021 to 2023.

The study concluded that the implementation of the new principles introduced by IFRS 16 in handling lease contracts would have a significant effect on the financial statements of institutions, particularly those with a large volume of off-balance-sheet leases. Moreover, this standard will contribute to ensuring the provision of relevant information regarding lease transactions and increasing transparency in financial statements, thereby aiding users in evaluating the financial position and performance of institutions. It will also allow for comparisons between the financial statements of companies that lease assets and those that borrow to purchase assets. This study recommends the necessity of updating the rules of the financial accounting system (SCF) used in the Algerian environment to align with the requirements of IFRS 16, as well as providing an appropriate environment that enables Algerian economic institutions to effectively implement these requirements.