Leasing is nowadays an established part of the economy as an investment alternative. These figures are promising for the German market, but also comparable with the US. There the share of the investment market accounted for by leasing remained at over 30 percent for years. Due to the financial crisis this rate decreased, but it's rising again. In spite of the crisis leasing expanded its top position as an alternative to the classic bank loans over the past 50 years. Recognized as key engine of innovations, it even assures sufficient financial cushion for investments and contributes to growth dynamics in economies.
But what exactly is leasing? There is no generally applicable definition of leases, but in its simplest form, it can be described as provision of access to finance. Leasing object can be anything as classical as machines or real estates, but also intangible assets as software or trademark rights. Leases are an important instrument of accounting policies for entities. In many sectors appropriate equipment is not bought, but leased.
Therefore and because of the globalization of capital markets an increasing convergence of accounting standards worldwide is accelerated. The progress toward attaining a global financial reporting framework is focused, and many significant steps have been taken. One of them is the Exposure Draft ED/2013/6. The ambition of it was to guarantee transparency of financial statements as source of information for their readers of financial statements who can be managers, investors, financial auditors but also a big range of stakeholders. Reasons for revising was that the lease accounting model has continually met with criticism. Objective of the following term paper is to provide an overview of the current lease accounting standard.
Table of Contents
1 Introduction
2 Accounting for leases IAS 17
2.1 Scope
2.2 Classification of leases
3 Finance leases
3.1 Lessor
3.2 Lessee
4 Operating leases
4.1 Lessor
4.2 Lessee
5 Sale-and-lease-back
6 Significant differences in contrast to HGB and US-GAAP
7 Conclusion
Objectives and Topics
This paper aims to provide a comprehensive overview of the current lease accounting standards under IAS 17, focusing on the classification, recognition, and measurement of leases for both lessors and lessees, while also addressing differences compared to other accounting frameworks.
- The scope and regulatory framework of IAS 17
- Distinction and classification criteria between finance and operating leases
- Accounting treatment of finance and operating leases for lessors and lessees
- Analysis of sale-and-lease-back transactions
- Comparative perspective on international accounting standard differences
Excerpt from the Book
2.2 Classification of leases
According to the recent regulations of IAS 17 a contract that fulfills the definition of a lease will be classified as either finance or operating. What separates the two leases is that the former gives rise to an asset and a liability accomplished by asset acquisition with debt financing, while the latter are conveniences to temporarily use someone else`s property and only causes rent payments. The classification happens with the inception of the lease. Whether it is classified as finance or operating depends on if substantially all risk and rewards incidental to ownership of the asset has been transferred from the lessor to the lessee. This „all-or-nothing-approach“ is often criticized as the classification as an operating lease means that an “off-balance-sheet-effect“ for the lessee is enabled. As consequence the user of the financial statement misses important information detached from the lack of statements about the leasing object and corresponding leasing liabilities.
Chapter Summary
1 Introduction: Discusses the economic significance of leasing as an investment alternative and the necessity for global convergence in lease accounting standards.
2 Accounting for leases IAS 17: Outlines the scope of the standard and the fundamental principles for classifying lease agreements.
3 Finance leases: Details the criteria for identifying finance leases and the specific accounting requirements for both lessors and lessees.
4 Operating leases: Examines the characteristics of operating leases and the corresponding reporting requirements for lessors and lessees.
5 Sale-and-lease-back: Explains the accounting treatments for transactions where an asset is sold and simultaneously leased back by the seller.
6 Significant differences in contrast to HGB and US-GAAP: Provides a brief comparative analysis regarding the differences between IFRS principles and US GAAP reporting.
7 Conclusion: Summarizes the criticisms of the current standard and the ongoing efforts toward more consistent, right-of-use-based reporting.
Keywords
IAS 17, Finance Lease, Operating Lease, Lessor, Lessee, Sale-and-lease-back, IFRS, US GAAP, Financial Statements, Asset Recognition, Liability, Accounting Standards, Lease Payments, Fair Value, Economic Content
Frequently Asked Questions
What is the primary focus of this scientific paper?
The paper focuses on the current lease accounting standard, IAS 17, explaining its application, classification, and reporting requirements.
What are the central thematic areas of the work?
The work covers the definitions of finance and operating leases, their accounting treatment, sale-and-lease-back transactions, and comparisons with US GAAP and HGB.
What is the core objective of the research?
The goal is to provide a structured overview of lease accounting standards and how they impact financial statement transparency for various stakeholders.
Which methodology is applied in this analysis?
The paper utilizes a literature-based analysis, reviewing International Accounting Standards (IAS 17) and academic discussions regarding lease accounting reform.
What does the main body of the text address?
The main body details the specific recognition and measurement rules for finance and operating leases, distinguishing between the roles of the lessor and the lessee.
How can this paper be characterized by its keywords?
The paper is defined by terms such as IAS 17, finance/operating leases, accounting standards, and financial transparency.
What is the "all-or-nothing-approach" mentioned in the text?
It refers to the binary classification of a lease as either finance or operating, which is criticized because it can lead to "off-balance-sheet" effects for lessees.
How does the author view the future of lease accounting?
The author anticipates a move toward more consistent reporting based on the "right of use," where the distinction between finance and operating leases may eventually disappear.
- Quote paper
- Anonym (Author), 2014, Accounting for leases. Analysis of the IAS 17 and its impact, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/304566
