16 Pages Posted: 28 Feb 2011 Last revised: 11 Jun 2013
Date Written: February 23, 2011
The International Accounting Standards Board (IASB) and The Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-to-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications.
We are sympathetic to the standard setters concern that the current lease standard is being manipulated improperly by managers resulting in large amount of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios.
This comment was developed by the Financial Accounting Standards Committee of the American Accounting Association and does not represent an official position of the American Accounting Association.
Suggested Citation: Suggested Citation
Biondi, Yuri and Bloomfield, Robert J. and Glover, Jonathan C. and Jamal, Karim and Ohlson, James A. and Penman, Stephen H. and Tsujiyama, Eiko and Wilks, T. Jeffrey, A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases (February 23, 2011). Accounting Horizons, Vol. 25, No. 4, 2011; University of Alberta School of Business Research Paper No. 2013-681; Johnson School Research Paper Series No. 16-2011. Available at SSRN: https://ssrn.com/abstract=1768083 or http://dx.doi.org/10.2139/ssrn.1768083
By Eva Huang