The Requirements Of The Fasb / Iasb Lease Project

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1.0 Introduction As of 1 January 2019, the new AASB 16 Leases standard, Australia’s equivalent of IFRS 16, will be in effect. With a need for an improved standard in order to better reflect the economic reality of companies, AASB 16 Leases has been developed over a long period of time in order to address the issues of the previous standard. The purpose of this report is to provide an overview of the changes in comparison to the old AASB 117 Leases standard. An outline will be provided of the development process of the FASB/IASB Lease project and to conclude, a position statement on future implications of the new standard. 2.0 Comparison of Accounting Standards & Rationale for Change Comparing AASB 117 to AASB 16 the most significant…show more content…
(5)(8) According to Hans Hoogervorst, Chairman of the IASB, there was a significant need for an improved leasing standard. (2)(16) The limitations of AASB 117 were as follows. Companies were unable to accurately assess the risk of potential future leasing transactions as a majority of leases were not reported on a lessee’s balance sheet (1). In order to address this issue, the new standard proposes changes to how lessors would account for leases that are not on the balance sheet (1). Under AASB 117, investors are making rough inaccurate estimates as to the hidden leverage from leasing. (2) With nearly all leases now appearing on the balance sheet with the new standard, the quality, accuracy and transparency of financial reporting will improve significantly (2) (1) 3.0 Evolution and Outcomes of Joint FASB/IASB ‘Lease Project’ The evolution of the joint FASB/IASB ‘Lease Project’ was over a period of 10 years (2). A discussion paper in 2009 as well as two exposure drafts were issued in 2010 and 2013. (4) Both of these were open for comment and were used to predict and improve on the likely effects of the revised standard (8). Over 1,700 comment letters during the standard development stages, providing an indication as to the detailed approach taken by the IASB. (10) By the conclusion of the development of IFRS 16, the benefits outweighed the costs.
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