Accounting

NEWS RELEASE 03/19/09

IASB and FASB Launch Public Consultation on a Future Standard on Lease Accounting

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) today launched a public discussion on lease accounting by publishing their preliminary views in a joint discussion paper.

The discussion paper Leases: Preliminary Views is a response to concerns raised by investors and other users of financial statements regarding the treatment of lease contracts under International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP).

According to the World Leasing Yearbook 2009, total annual leasing volume in 2007 amounted to US$760 billion; yet many of those lease contracts do not appear in an entity’s statement of financial position (balance sheet). This is because IFRSs and US GAAP split leases into two categories—finance leases (capital leases under US GAAP) and operating leases—and only the assets and liabilities arising from finance leases are recognised in the statement of financial position. For an operating lease the lessee simply recognises lease payments as an expense over the lease term.

The different accounting treatment of finance and operating leases has given rise to various problems, in particular:

* Many users of financial statements believe that all lease contracts give rise to assets and liabilities that should be recognised in the financial statements of lessees. Therefore these users routinely adjust the recognised amounts in the statement of financial position in an attempt to assess the effect of the assets and liabilities resulting from operating lease contracts. 

* The split between finance leases and operating leases can result in similar transactions being accounted for very differently, reducing comparability for users of financial statements. 

* The difference in the accounting treatment of finance leases and operating leases...