IASB and FASB Submits Proposals to Simplify Lease Accounting

Jack Humphrey, Regulatory journalist
August 06, 2010 /

The IASB (The International Accounting Standards Board) and the FASB (US Financial Accounting Standards Board) has announced plans to bring in new proposals to the ways in which lease contacts’ financial reporting is handled. The aim is for a better system of lease accounting where the process would be less complex and more transparent.

Chairman of the IASB, Sir David Tweedie said that the current rules on lease commitments give a false impression of the companies’ gearing and liabilities. He also said that the new proposals would result in more complete and better financial reporting information as far as lease contacts are concerned.

The new proposals have adopted a right- to- use approach which offers a consistent approach for both the lessees and lessors in lease accounting. This will mean that the lessees’ statement of financial position will include the right of using the underlying assets as well as the liability for payments to be made under the leasing contract.

The boards drew up the proposals based on the responses they received to their discussion paper entitled Leases: Preliminary Views, which was published in May last year. It also gained inputs from extensive constituents, which includes more than 300 comment letters.

The proposals of the boards have been put out in the Leases exposure drafts and it is open for comment till Dec 15 this year. Both the IASB and the FASB’s website can be used to access the proposals and comments can be put in through its “Comments on proposal” button.

The final standard is expected to come out in the early part of 2011, though before that further public consultation will be done. The boards are also on the lookout for entities to do field work to test the viability of the proposals.

 

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