Keywords

lease accounting reform, right-to-use model, balance sheet recognition

Abstract

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.

Original Publication Citation

A perspective on the joint IASB/FASB exposure draft on accounting for leases (Y. Biondi, R. Bloomfield, J. Glover, K. Jamal, J. Ohlson, S. Penman, E. Tsujiyama, T. J. Wilks), Accounting Horizons, December 2011.

Document Type

Peer-Reviewed Article

Publication Date

2011

Publisher

Accounting Horizons

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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