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The proposed changes have come to address this concern wherein structuring the amount presented in the transaction is reduced to achieve a desired accounting outcome. Also, to decrease complexity, to improve transparency and comparability, and to have more complete financial statements, the IASB and US FASB had published a joint proposal to change the existing standard of lease accounting. The scope of the proposed improvement involves US - SFAS 13 and IFRS - IAS 17 wherein the aim is to develop a new single approach instead of the previous operating and finance lease approaches (ACCA 2009). In the proposed ‘right-of-use’ mode, investors and other users of financial statements need not to make necessary adjustments because all assets and liabilities are now being recognized in the statement of financial position.
In this paper, the advantages and disadvantages of the proposed changes from the board exposure draft will be recognized. Also, the impact of the new single approach on the financial statements will be given an appropriate analysis.
The exposure draft has been published to solicit comments from the public either positive or negative. The board thinks that the advantages of creating a consistent approach will decrease complexity and at the same time increase comparability of financial statements that will outweigh the disadvantages (FASB 2010 p.93).
Advantages. Providing a complete presentation of financial reporting information for users of financial statements will increase transparency, and this is one of the major advantages of the proposal (IFRS 2009 p.4). A ‘complete presentation’ in the sense that the understated assets and liabilities arising from all lease contracts will now be identified. All of the company’s leasing activities either in a form of an assets or liabilities will now be
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Off-balance sheet arrangement have long been the main concern of all accounting regulators and the economic consequences related to these items have prompted these regulators around the globe to think of developing standards that increases transparency in the financial reporting.
Lease treatment in financial statement is accounted under International Accounting Standards – IAS 17. Recently, under Exposure Draft ED/2010/9 Leases, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) proposed new approach to lease accounting for lessees and lessors.
The author thinks that the existing IAS provides a very simple treatment in case of operating lease such that it is not allowed to represent the leased asset under operating lease as part of the assets of the lessee’s balance sheet. Last section of this article critically examines the loopholes in the existing accounting standard.
The Conceptual Framework And Accounting For Leases By Dennis W. Monson his article was written in the year 2001 yet. For many years, the users of the financial statements, academics and others have given various comments on the present lease accounting procedures.
First, if lease rentals are recognized as per the lease agreement, there is likely to be a distortion in the profit and loss account. Secondly if the lessee does not disclose the leased assets in his balance sheet there are chances of distortions of the financial status of the lessee.
For the owner, the asset that is leased is always accounted for as an asset, despite depreciation. It, therefore, means that operating lease leave the lessor with a risk of equity, such that coming to end of the lease term the lessor shall be relying on
Under the finance lease, all the risks and rewards that come with ownership are transferable to the lessee. To the lessee, it forms both an asset and liability while to the lessor it is a receivable. On the other hand, operating leases form an expense to the