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Little to fear in new world of lease accounting

  • IFRS - IASB Image

Jan 04, 2016

On January 4, 2016, the International Accounting Standards Board (IASB) released an article initially published by "Compliance Week", where the IASB member, Gary Kabureck, discusses the forthcoming standard on lease accounting and concludes that there is "little to fear".

Mr Kabureck picks up on four points.

The business benefits of leasing would remain unchanged

He stresses that the forthcoming changes are about accounting for leases only; the benefits of leases - such as the ability to pay for and use only the portion of an asset’s life the lessee requires, predictable payments, use of assets without legal ownership, an alternative source of financing, and simplified asset disposals - would remain as they are.

Being off-balance had never meant that leases were out of sight

Mr Kabureck explains credit providers have always known about material operating lease commitments and have routinely adjusted entity financial statements. As long as information was not and will not be intentionally distorted, there was no reason to assume that a company's credit rating will be affected.

The reporting entity would still be the exact same company

He admits that a company’s balance sheet for a lease intensive company will look different, yet the leases that were part of the off-balance sheet arrangements were still part of the company’s essence and will continue to be so.

The world will adjust just fine

Mr Kabureck concludes that even though sometimes changes are controversial and meet resistance and sometimes even lead to transitional impacts, the new requirements would operationally be little more than adopting another mandatory accounting change that provides enhanced transparency about what already exists.

Please click to access the full text of Mr Kabureck's article on the IASB Web site.

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