The impact of the new lease accounting standard on financial performance indicators for internal performance evaluations
In august 2010, both the IASB and the FASB presented a rough draft for a new lease accounting standard. According to this exposure draft, lessees will be forced to capitalize all lease contracts. The key point of this standard was to provide a simplified, transparent and standardized way to account for all leases. From an economic point, lease contracts are closely related to credit-financed purchases and, by including them into the balance sheet, the new standard leads to a better reflection of the economic reality. This thesis evaluates whether the adoption of the proposed lease accounting standard for internal performance evaluations is reasonable. The focus of this study is on the informational and the motivational aspects of performance indicators with respect to goal congruence purposes. While it is found that the informational determinant of performance measures may improve due to the increased consistency and transparency, the effects relating the motivational component are differentiated. Although the general lease capitalization will likely improve goal congruence between agent and principal, the proposed standard may also lead to dysfunctional restructurings of lease contracts and earnings management. However, taken together the thesis concludes that the new proposed standard will like improve internal performance evaluations.