As White as a Balance Sheet: The Changes Proposed to Lease Accounting Are Real But Are Not as Bad as Initially Feared
As a result of the large number of critical responses received to the Exposure Draft that was released in August 2010, the International Accounting Standards Board (IASB) has made some significant amendments to its proposed new lease accounting standard.
Under the proposals set out in the Exposure Draft, there would no longer be a distinction between an operating lease and a finance lease, and all leases would be reflected on a company’s balance sheet as an asset and a liability. The main rationale for this was to improve comparability across financial statements, eliminate accounting arbitrage between operating leases and finance leases, and eliminate “off balance sheet” financing through the use of operating leases.
This meant that leases would be accounted for in a similar way to the current treatment for finance leases, ie. the P&L