FASB and IFRS Leasing Standard: Changes
Progression between 2010 Revision and 2013 Revision
And its Effects on Businesses
FASB and IFRS Leasing Standard: Revision progression between Exposure Draft 2010 and Exposure Draft 2013
Within the past decade, accounting for leases has become a prominent topic of discussion between the Financial Accounting Standards Board and the International Financial Reporting Standards. Leasing upholds a strong significance in the business world as it is a prevalent business activity resulting in approximately over a trillion dollars of off-balance sheet undiscounted operating lease commitments. Currently, rules applying to the leasing standard do not require a lessee to report these leases on their balance sheet; therefore, the FASB and IFRS have initiated a joint project with full intentions of improving the process of financial reporting in regards to leasing activities. The biggest changes that can be expected to be seen from the overall project are: all leases being included on the balance sheet, thus eliminating the distinction between operating and finance leases; earnings before interest, taxes, depreciation and amortization (EBITDA) would be more favorable along with cash flows from operating activities; lease liabilities would be re-evaluated at every reporting date where significant changes can be seen, thus most likely requiring internal controls and information systems to undergo substantial changes; possibility of tax issues arising, and the timing of expense recognition would be accelerated as expense becomes recharacterized from a rent expense to interest expense and amortization.
The objective of the leasing standard project, as conducted jointly between the International Financial Reporting Standards (IFRSs) and the Financial Accounting Standards Boards (FASB) is to “develop a standard that establishes the principles that lessees and lessors shall apply to report useful information to users of financial...