a history of lease accounting the need for change
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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  • IAS 17 & FAS 13 are out of date and inconsistent with other standards and with current thinking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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