Leases theory    LO1, 7 Anywhere Transport Ltd operates in the transport industry and has a fleet of trucks, most of which are leased. The lease agreements have been classified as operating leases under AASB 117. In accordance with that standard, no asset or liabilities have been recognised for the rights to use the truck under the lease, or for the corresponding obligations to make lease payments for the duration of the lease. Accordingly, Anywhere Transport Ltd does not currently recognise any right‐of‐use asset or lease liability for its fleet of trucks. Lee has recently been appointed as the chief financial accountant of Anywhere Transport Ltd. He is eager to show his new employer that he is very up to date with accounting standards. Lee presents a proposal to senior management to adopt AASB 16 Leases in preparing the financial statements of Anywhere Transport Ltd for the year ended 30 June 2018, even though the company is not required to apply the new standard until the year ended 30 June 2020. The proposal includes the following comparisons of items reported in the statement of financial position at 30 June 2020. Continue applying AASB 117 Early adoption of AASB 16 $’000 $’000 Current liabilities 1 300 2 300 Non‐current liabilities 2 700 5 700 Total liabilities 4 000 8 000 Non‐current assets 6 000 10 000 Total assets 8 000 12 000 Anywhere Transport Ltd’s profit before tax is usually approximately $1 600 000. The adoption of AASB 16 would not have a material effect on profit because the duration of the leases is not very long and interest rates are currently low. Anywhere Transport Ltd’s liabilities include unsecured notes. The trust deed for the unsecured notes specifies a leverage constraint that total liabilities should not exceed 60% of total assets. The executive remuneration plan for senior management of Anywhere Transport Ltd includes a bonus that is subject to a performance hurdle. Senior managers are only eligible for a bonus if pre‐tax return on assets (the ratio of profit before tax to total assets) exceeds 15%. Lee was surprised to discover that senior management did not like his proposal, suggesting that he did not fully appreciate the incentives and constraints that were important to the company. Required 1. With reference to manager–lender agency relationships (see chapter 2 of this text), explain why the senior management of Anywhere Transport Ltd may be reluctant to adopt AASB 16 earlier than required. Support your answer by explaining the effect of the adoption of AASB 16 on the company’s obligations arising from the unsecured notes. 2. With reference to owner–manager agency relationships (see chapter 2 of this text), explain why the senior management of Anywhere Transport Ltd may be reluctant to adopt AASB 16 earlier than required. Support your answer by explaining the effect of the adoption of AASB 16 on the company’s executive remuneration contracts.