Lease accounting: an update on the international proposed amendments

This paper describes the development of the IASB/FASB project on lease accounting launched in 2009, its current proposals, and ACCA’s views on these. The international amendments to lease accounting, once final, are likely to have a significant impact on lessees, in particular. The proposed amendments seek to address long-standing criticisms of the current lease accounting model.


This paper describes the development of the International Accounting Standards Board (IASB)/Financial Accounting Standards Board (FASB) project on leasing, the current proposals, and ACCA’s views on these. 

The project’s aim is to address criticisms of the current International Accounting Standard on leasing, IAS 17. In particular, there are concerns that numerous leases are not reflected on balance sheets, despite their clear financing element. As a result analysts, in particular, have made their own adjustments, with the consequent risk of inconsistency. 

Accounting Standards do need to address the above situation. Throughout, the proposed solution has been to include the large majority of leases on the balance sheets of both lessees and lessors. By contrast, IAS 17 sets a high threshold below which lease payments can be expensed by lessees. The resulting simpler and usually more tax-beneficial treatment presents a risk that leases will be manipulated to meet the criteria for expensing. 

IAS 17 has been criticised for not reflecting economic reality. Well-known examples include fleets of aircraft or rolling stock that do not meet the criteria for recognition as assets and liabilities by the lessee, and for which a lack of detailed disclosure is required in financial statements. 

The project on leasing is long running, generating numerous responses, some expressing support for change but others preferring to leave the IAS 17 model fundamentally unaltered. Understandably then, the proposals have been amended over time, although some changes give an impression of compromise. 

ACCA has engaged in the consultation throughout, developing views through the ACCA Global Forum for Corporate Reporting (and its predecessor, the ACCA Financial Reporting Committee). ACCA agrees that, to a greater extent than at present, the financing element of leases should be reflected on the balance sheet. Nonetheless, given concerns about the proposals, ACCA’s stance remains markedly different to that of both the IASB and the FASB (as full convergence now appears unlikely).