Optimized Design Of Leasing Programs In Retail Industry Under The New Leasing Standards

Operating leases are one of the most widely used leasing methods in China.Under the original leasing standard,the underlying assets of operating leases were not required to be reflected in the statements Correspondingly,only the rental expenses were recognized,which gave the operating lease the characteristics of off-balance sheet financing.As a result of the Enron financial fraud and the financial crisis in 2008,the flaws in the accounting treatment rules of the original leasing standard became apparent.In order to further standardize the accounting treatment,IFRS 16 Leases was created.Simultaneously,adhering to the principle of convergence with international accounting standards,China’s Ministry of Finance revised and issued the Accounting Standard for Business Enterprises No.21-Leases(CAS 21)in December 2018.Undeniably,the application of the new leasing standard will enhance reliability and authenticity of data,and more truly reflect the operating conditions of enterprises.However,for enterprises with more operating leases,the implementation of the new leasing standard will impact differently.Firstly,the new leasing standard will have a more volatile impact on the financial statements of enterprises.Besides,the new leasing standard will also have a negative impact on the credit and financing of enterprises.The retail industry is a typical example.Suning is a leading retailer in China,and has many offline shops.This thesis therefore selects Suning as the subject of the study to examine the expected impact of the change in leasing standards on Suning,and to explore how to mitigate or smooth out the negative impact by optimizing the leasing programs.This thesis adopts a combination of theoretical analysis and typical case studies.Firstly,it introduces the research background and significance of the thesis,and summarizes and reviews the recent literature at home and abroad;Secondly,it explains the definition of the relevant concepts in the leasing code and the main contents of the revised changes to the new leasing code in China.Furthermore,the thesis briefly introduces the evaluation method and theoretical basis in this thesis,which provides the theoretical basis for the case study below.In the case study section,this thesis takes Suning as a case study,and analyzes the expected impact of the change in the leasing standard on Suning from three major statements and key financial indicators.Moreover,it also proves the necessity of optimizing the original leasing scheme of the enterprise in three aspects,such as financial risk,financing ability and asset allocation structure,and explains the feasibility of optimizing the leasing scheme for Suning through multiple perspectives.It also illustrates the feasibility of optimizing the leasing programs of Suning from multiple perspectives.In the light of the basic situation of the case,this thesis focuses on the three dimensions of leasing contracts,leasing modes and asset acquisition methods of Suning,this thesis adopts various approaches to optimize the design of Suning’s original leasing programs,and evaluates the effect of different approaches respectively.The evaluation finds that taking measures,such as splitting the non-leasing portion of the lease contract,adopting short-term leases,and evenly distributing lease payments,were able to mitigate the negative impact of the new lease standard on Suning.com’s financial statements in the initial period of application.Suning can also innovate its leasing model by introducing a "variable rent" model,a leveraged leasing model and setting up a leasing subsidiary,or adjusting its asset purchase and leasing decisions by increasing the number of franchised shops,buying shops outright and selling low-efficiency stores.This thesis uses a combination of literature research,case studies and comparative analysis to reveal the specific impact of the new leasing standards on the retail industry,and identifies optimized leasing solutions for the retail sector.The thesis breaks through the limitations of existing studies which only focus on the financial impact of the changes in leasing standards on enterprises,and only gives suggestions to enterprises at a systematic and theoretical level.The thesis concludes that the change in leasing standards will have a significant impact on the three main statements and key financial indicators of the retail industry,which in turn will drive the retail industry to take proactive measures to mitigate its negative impact.Therefore,in terms of contracting,the retail industry needs to strengthen the communication between the contracting parties and adjust the contract terms;in terms of leasing models,both leasing parties can collaborate to innovate leasing models and promote the development of China’s leasing market;in terms of purchasing and leasing decisions,the retail industry needs to re-plan its asset acquisition methods.This thesis also points out that when optimizing leasing programs,enterprises need to pay attention to the legality of the optimization programs,adequate communication with relevant parties,training of financial personnel and strengthening the construction of information systems.In order to facilitate the calculation and analysis,this thesis has made some assumptions in the analysis of the impact of the implementation of the new leasing standard on enterprises and the design of lease programs optimization,hoping that this thesis can provide reference for retail enterprises to better cope with the changes in the leasing standard.