• Type: Publication series
  • Date: 5/21/2013

IASB and FASB propose to bring leases on-balance sheet 


21 May 2013, Bucharest


Fundamental changes to lease accounting proposed on 16 May by the IASB and FASB would bring most leases on-balance sheet for lessees.

Angela Manolache

Director, Advisory


Many lessee companies would see an increase in assets and liabilities reported in their IFRS financial statements, and the proposals would have significant impacts on many different lease transactions – ranging from leases of ‘big-ticket’ items such as manufacturing facilities and aircraft, to leases of office space and smaller items such as company cars and computers.

In addition to bringing most leases on-balance sheet for lessees, the proposals would also introduce a new lease classification test resulting in a ‘dual model’ for both lessees and lessors.  This would preserve straight-line expense recognition for most leases of property – i.e. land and/or buildings – similar to operating leases today. However, there would be interest and amortisation expense recognition for most other leases, similar to finance leases today (i.e lease expense would not be recognised on a straight-line basis.)

The transition to the new proposals would require all existing leases and potential lease contracts to be re-analysed. For some – particularly lessors and lessees with large existing leasing portfolios – the system changes required for IFRS reporting purposes are likely to be significant.

Implementing these proposals would be a real challenge for many organisations, as they would need to identify all their leases, extract key data, make new estimates and judgements, and perform new calculations. Companies will also need to consider how these proposals would affect their organisation and business practices. The proposals would impact a company’s ability to accurately predict and forecast assets and liabilities under IFRS, due to the requirement to re-assess certain key estimates and judgements at the end of each reporting period. Such volatility could have a significant impact on a company’s compliance with debt covenants, as well as on its tax balances and its ability to pay dividends (for the entities which apply IFRS as basis of accounting). Lessor accounting proposals involve considerable complexity, particularly for most leases of assets other than property.

The proposals are open for comment until 13 September 2013.


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