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A History of Lease Accounting & the Need for Change. Warren McGregor IASB member The views expressed in this presentation are those of the presenter, not those of the IASB. History. 1976 – FAS 13 1982 – IAS 17

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A history of lease accounting the need for change

A History of Lease Accounting & the Need for Change

Warren McGregor

IASB member

The views expressed in this presentation are those of the presenter, not those of the IASB


History
History

  • 1976 – FAS 13

  • 1982 – IAS 17

  • 1996 – G4+1 Recognition by Lessees of Assets and Liabilities Arising under Lease Contracts

  • 1999 – G4+1 Leases: Implementation of a New Approach

  • 2002 - Improvements project


History1
History

  • July 2006 – IASB & FASB add Leasing Project to agendas

  • December 2006 – Joint Working Group formed

  • February 2007 – First working group meeting held

  • 2007 - Boards begin deliberations


Why do we need a new leasing standard
Why do we need a new leasing standard?

  • Current accounting standards are based on whether the lessee is economically like an outright owner

  • This is inconsistent with the IASB’s & FASB’s concept of an asset; any entity that controls future economic benefits should recognise an asset – not just owners


Why do we need a new leasing standard1
Why do we need a new leasing standard?

  • Small distinctions result in fundamental differences in accounting

    • Operating leases off-balance sheet

    • Finance leases on-balance sheet

  • Distinctions are arbitrary – causes lack of comparability


Why do we need a new leasing standard2
Why do we need a new leasing standard?

  • IAS 17 & FAS 13 are out of date and inconsistent with other standards and with current thinking

  • Lease accounting literature is voluminous and complex, particularly in the US

  • Opportunity for convergence


Why do we need a new leasing standard3
Why do we need a new leasing standard?

  • Leasing transactions are significant

  • SEC Report – approximately $US 1.25 trillion (undiscounted) under non-cancellable operating leases not recognised on issuer balance sheets


Why do we need a new leasing standard4
Why do we need a new leasing standard?

  • The omission of assets and liabilities from lessee’s financial statements means they are incomplete

  • Users routinely make estimated adjustments to take account of operating leases


What will the leasing project cover
What will the leasing project cover?

  • Fundamental revision of all aspects of lease accounting:

    • Lessee accounting

    • Lessor accounting

    • Ultimately all types of leases will be covered; but initially focus will be on scope of existing lease standards


Next steps
Next steps

  • Board deliberations & working group meetings

  • Discussion paper (DP) to be issued in 2008

  • DP to include:

    • Preliminary views of the boards

    • Invitation to comment

  • Work on exposure draft to begin once responses received on DP



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