Disclosure Of Leases On Company Financial Statements

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In 1949 the AICPA released ARB No. 38 over the disclosure of leases on company financial statements. Before this bulletin it was not normal for the lessee to disclose the fact that the company was in a contract long-term lease of an asset. The Accounting Institute of Certified Public Accountants felt that investors and other decision making personnel should have the right to know about leases in which a company was contractually bound. The committee states in this bulletin that when it clearly evident that the lessee will have ownership of the asset after all payments are made, that the lessee should account for this in the assets and liabilities of the company’s Balance Sheet. The committee believes that the AICPA issued the opinion that all long-term leases should be disclosed in the financial statements or the footnotes. These disclosures include the payment amounts and other obligations assumed not only in the year in which they occurred but any material amounts in the life of the lease. (Committee on Accounting Procedure, American Institute of Accountants, 1949) Although, the main point of this bulletin was to address long-term leases, the AICPA never formally defines what it means by a long-term lease which can be assumed to be what modern day accounting defines as a capital lease. The purpose of the bulletin was not to address short-term leases (now called operating leases) because there was no exchange of rights in these situations. Although the above opinion was
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