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It is now time to move away from trying to incorporate the Right of Use methodology, and instead have a debate about how to improve the current IAS 17 system, such as through strengthening disclosures, and changing the threshold for recognising a finance lease
—Richard Martin, head of corporate reporting, ACCA

Additional complexities for accountants who deal with a large number of operating leases will arise from the IASB’s proposals says the Global Forum for Corporate Reporting

Proposals to change the way in which leased assets are accounted for, put forward by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), will make accounting more complex but with no real benefit, the Global Forum for Corporate Reporting at ACCA (the Association of Chartered Certified Accountants) has claimed.

The proposals put forward by the IASB and FASB regarding the Right of Use methodology say that all leased tangible assets should go on the balance sheet of the lessee company, at an amount representing the ability to use them during the lease term.

Responding to the exposure draft on the issue, ACCA continues to say that this model would make accounting more complex and time consuming, but to little or no benefit to anyone involved.

Richard Martin, ACCA’s head of corporate reporting, said: 'ACCA’s Global Forum thought some of the changes the IASB has proposed with regard to leasing represent progress, but the proposals will still not improve the process of lease accounting overall.

'It is now time to move away from trying to incorporate the Right of Use methodology, and instead have a debate about how to improve the current IAS 17 system, such as through strengthening disclosures, and changing the threshold for recognising a finance lease. 

'The IAS 17 model needs to be updated to meet the needs of today’s financial world, but for users of the financial statements it’s fundamentally a much simpler and easier-to-understand approach than the proposed Right of Use method, which has now been debated on for more than four years.

'ACCA’s response also supports straightforward treatments of lease terms and renewal options, to create more transparency and useful information about the assets in the financial statements of lessors and lessees. 

'Intangible assets are as much of importance as tangible ones, so continuing  to exclude these from the proposed Standard is not a helpful move by the IASB, and and we have been making this point since the previous Exposure Draft that was issued by the IASB in 2010. The reasoning behind the exclusion is not entirely clear.

'Accountants do not need to complicate the work they are already putting into the accounts they work on. Users of the accounts need them to be clear and comprehensive,' concludes Richard Martin.

  • ACCA’s full consultation response can be found via the 'Related Links' section, left of this article.