Accounting for leases is quite significant in the business reporting framework for its role in asset acquisition and valuation and for bank use in securing credit. Leases under AIS 17 are classified as a finance lease or an operating lease. A finance lease is a lease that transfers in totality all the risks and rewards inherent in ownership of the asset.
On the other hand, an operating lease is any lease other than the finance lease. The accounting treatment depends on the nature of the lease. The treatment is to create a lease asset and liability at the beginning of the lease. The new lease recognition will alter the financial reporting approach as leases will have to be factored in the balance sheet. Besides, it will require systems developers to design new software to help manage leases as part of assets and liabilities.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- How companies are required/ expected to account for leases under ED/2013/6 Leases
- Reasons why the IASB has issued ED/2013/6 Leases to replace the existing standard
- Possible impact the new recognition with having to the operation of companies
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This report aims to analyze the new lease recognition requirements under ED/2013/6, explaining the rationale behind the changes and assessing their impact on businesses. The report is intended for the Chief Financial Officer of a New Zealand company.
- Accounting for leases under the new standard (ED/2013/6)
- Reasons for the IASB's issuance of ED/2013/6
- Impact of the new lease recognition on company operations
- Changes in financial reporting and internal controls
- The need for new software and systems development
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction: This introductory chapter sets the stage by highlighting the critical role of lease accounting in business reporting and financial institution interactions. It underscores the importance of accurate lease accounting in mitigating risks associated with asset ownership and improving transparency for stakeholders. The chapter emphasizes the focus on improving the weaknesses of previous standards and the need for a more robust and transparent reporting framework.
How companies are required/ expected to account for leases under ED/2013/6 Leases: This section details the new accounting treatment of leases under ED/2013/6, contrasting it with the previous AIS 17 standard. It explains the classification of leases into finance leases and operating leases and the creation of lease assets and liabilities at the lease's commencement. The chapter specifically addresses the proposed treatment under the draft, introducing Type A and Type B classifications and explaining the implications for asset and liability recognition, including the impact on carrying amounts and lease payments. This new approach mandates recognition of both assets and liabilities, impacting lessee financial reporting through enhanced disclosures and improved financial leverage.
Reasons why the IASB has issued ED/2013/6 Leases to replace the existing standard: This chapter explores the motivations behind the IASB's decision to replace the existing lease accounting standard. It critically examines the shortcomings of the previous GAAP and IFRS standards, which lacked uniformity and led to varying interpretations. The chapter highlights the joint effort between FASB and IASB to address criticisms and enhance transparency in lease reporting, emphasizing the responsiveness to recommendations from organizations like the SEC. The need to cater to the needs of financial statement users and to correct inconsistencies in the old model, which allowed for multiple accounting treatments for the same transaction, is thoroughly discussed.
Possible impact the new recognition with having to the operation of companies: This section analyzes the potential consequences of the new lease recognition requirements for businesses. It forecasts changes in financial reporting, potentially necessitating adjustments and employee upskilling. The chapter also predicts alterations in internal controls and organizational processes, including the need for more robust monitoring of lease terms and the development of effective controls to manage leases as company assets. Finally, it stresses the significant role of IT and the need for new lease accounting software, highlighting the responsibility of systems developers to create systems compliant with the new standard.
Schlüsselwörter (Keywords)
Lease accounting, ED/2013/6, IASB, IFRS, GAAP, finance lease, operating lease, financial reporting, asset recognition, liability recognition, internal controls, software development.
FAQ: Comprehensive Language Preview of ED/2013/6 Leases
What is the purpose of this report?
This report analyzes the new lease recognition requirements under ED/2013/6, explaining the rationale behind the changes and assessing their impact on businesses. It's intended for the Chief Financial Officer of a New Zealand company.
What topics are covered in the report?
The report covers accounting for leases under ED/2013/6, the reasons for the IASB issuing this standard, the impact on company operations, changes in financial reporting and internal controls, and the need for new software and systems development.
What are the key themes explored in the report?
Key themes include the new accounting treatment of leases under ED/2013/6 (contrasting it with the previous AIS 17 standard), the IASB's motivations for replacing the existing standard, and the potential consequences of the new requirements for businesses (including changes in financial reporting, internal controls, and IT systems).
How does the report explain the new accounting treatment of leases under ED/2013/6?
The report details the classification of leases into finance leases and operating leases, the creation of lease assets and liabilities at the lease's commencement, and the implications for asset and liability recognition under the proposed Type A and Type B classifications.
Why did the IASB issue ED/2013/6 to replace the existing standard?
The report examines the shortcomings of previous GAAP and IFRS standards, highlighting the lack of uniformity and varying interpretations. It emphasizes the joint effort between FASB and IASB to address criticisms and enhance transparency in lease reporting, aiming to correct inconsistencies and cater to the needs of financial statement users.
What is the potential impact of the new lease recognition on company operations?
The report analyzes potential consequences such as changes in financial reporting, the need for employee upskilling, alterations in internal controls, and the development of new lease accounting software. It stresses the significant role of IT and the need for systems compliant with the new standard.
What are the key terms and concepts discussed in the report?
Key terms include lease accounting, ED/2013/6, IASB, IFRS, GAAP, finance lease, operating lease, financial reporting, asset recognition, liability recognition, internal controls, and software development.
What is the structure of the report?
The report includes an introduction, sections detailing how companies should account for leases under ED/2013/6, the reasons for the new standard, and the potential impact on company operations. It also provides chapter summaries and a list of keywords.
Who is the intended audience of this report?
The report is primarily intended for the Chief Financial Officer of a New Zealand company.
Where can I find more information about ED/2013/6?
This report provides a comprehensive overview, but further research into ED/2013/6 and related IASB publications is recommended for a complete understanding.
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- David Ikanyi (Autor:in), 2018, Accounting Standard and Regulation Report, München, GRIN Verlag, https://www.grin.com/document/387274
