Contents
Introduction 2
Problems encountered with IAS 17 2
New proposal justified within the IASB Framework 2
The Elements of the Financial Statements 3
The Objective of the Financial Statements 3
Qualitative Characteristics of the Financial Statements 4
Relevance 4
Reliability 4
Comparability 4
The Impacts of the New Proposal 5
Conclusion 6
Bibliography 7
Appendices 9
Introduction
The aim of the report is to analyse the debate on the proposal of both operating and finance leases, to be capitalized on the Statements of Financial Position (SFP). The Global IFRS leader, Joel Osnoss stated “As leasing is such a common transaction, this proposal would, no doubt, affect companies around the globe and across all industries” (Osnoss, 2010).
The report will go on to identify whether the IASB and FASB joint proposal, eliminating differences in treatment, will be beneficial to academics, regulators, the profession and users.
Sir David Tweedie, the chairman of the IASB, stated “much of the estimated annual $640 billion of lease commitments fails to appear on the balance sheet of lessees, thereby giving a false impression of companies’ liabilities and gearing.” (IFRS, 2010) This opinion is shared by others with the new proposal to be finalised and issued in 2011 and effective from 2012/13. The proposal can be justified in terms of the IFRS Framework; however it is debatable whether there is an overall consensus with this concept.
Problems encountered with IAS 17
The “bright-line” (Goldman Sachs, 2010) nature causes a problem when classifying between leases. Majority of users believe that operating leases should be recognised within the SFP as a set period gives the right to use the asset; it effectively ignores the definition of the assets and liabilities within the framework.
Similar transactions can be accounted for by either finance or operating lease, depending on whether the company wants to attain a specific accounting result. It... [continues]
Introduction 2
Problems encountered with IAS 17 2
New proposal justified within the IASB Framework 2
The Elements of the Financial Statements 3
The Objective of the Financial Statements 3
Qualitative Characteristics of the Financial Statements 4
Relevance 4
Reliability 4
Comparability 4
The Impacts of the New Proposal 5
Conclusion 6
Bibliography 7
Appendices 9
Introduction
The aim of the report is to analyse the debate on the proposal of both operating and finance leases, to be capitalized on the Statements of Financial Position (SFP). The Global IFRS leader, Joel Osnoss stated “As leasing is such a common transaction, this proposal would, no doubt, affect companies around the globe and across all industries” (Osnoss, 2010).
The report will go on to identify whether the IASB and FASB joint proposal, eliminating differences in treatment, will be beneficial to academics, regulators, the profession and users.
Sir David Tweedie, the chairman of the IASB, stated “much of the estimated annual $640 billion of lease commitments fails to appear on the balance sheet of lessees, thereby giving a false impression of companies’ liabilities and gearing.” (IFRS, 2010) This opinion is shared by others with the new proposal to be finalised and issued in 2011 and effective from 2012/13. The proposal can be justified in terms of the IFRS Framework; however it is debatable whether there is an overall consensus with this concept.
Problems encountered with IAS 17
The “bright-line” (Goldman Sachs, 2010) nature causes a problem when classifying between leases. Majority of users believe that operating leases should be recognised within the SFP as a set period gives the right to use the asset; it effectively ignores the definition of the assets and liabilities within the framework.
Similar transactions can be accounted for by either finance or operating lease, depending on whether the company wants to attain a specific accounting result. It... [continues]
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(2010, 12). Proposal of Operating Leases Being Included on the Balance Sheet. StudyMode.com. Retrieved 12, 2010, from http://www.studymode.com/essays/Proposal-Of-Operating-Leases-Being-Included-518745.html
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"Proposal of Operating Leases Being Included on the Balance Sheet." StudyMode.com. 12, 2010. Accessed 12, 2010. http://www.studymode.com/essays/Proposal-Of-Operating-Leases-Being-Included-518745.html.
