Accounting for leases

2287 Words Jul 18th, 2014 10 Pages
Accounting for leases
Kevin Tran
DeVry University

Author Note
Kevin Tran, Keller Graduate School of Management, DeVry University

Course Note
ACCT 525 Current Issues In Accounting, Professor Achilles

Dated
August 24, 2013 Abstract
This paper will provide an overview of lease accounting. It will present the history, current status, and future implications of the latest proposed standard, as jointly issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). Furthermore, the paper will take into account relevant observations made by various proponents who are concerned about the standard, and conclude with a personal opinion on the standard and why it’s better than the current
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4-5). The feedback deadline for this draft is September 13, 2013 ("Exposure Draft," 2013). As it turns out, this draft decided to take a much more prudent approach (compared to earlier proposals) towards lease accounting, allowing standards similar to SFAS 13 to remain applicable in practice for any leases that have terms of 12 months or less… or if it is a “Type B” lease (which will all be further explained below) ("Exposure Draft," 2013, p. 3). In effect, this would allow lessors to continue to structure their lease terms accordingly, which allows lessees the ability to renew these short-term leases in order to continue to practice off balance sheet financing. So what’s the current proposal to account for lease terms that are more than 12 months? First, the exposure draft would require entities that enter such a leasing contract to recognize the “right of use” asset and its associated liability ("Exposure Draft," 2013, p. 2). Second, the draft requires the entities to recognize the underlying “nature” of the asset as being either: Type A (non-property) or Type B (property) ("Exposure Draft," 2013, p. 2). Third, the draft requires the lessee to assess how much economic benefit it reasonably expects to derive from the “right of use” asset ("Exposure Draft," 2013, p. 2). Furthermore, the draft has guidelines for both the lessee and the lessor. These accounting guidelines will be described next—first for the

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