The US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have addressed this subject by proposing major amendments to the current FASB Accounting Standards Codification and an International Financial Reporting Standard (IFRS). Andrew K Malmanis of Alliott Group’s Santa Rose accounting firm member Linkenheimer LLP CPAs & Advisors explains.

Definition of a lease: a contract in which the right to use a specified asset or assets is conveyed, for a period of time, in exchange for consideration.

Leasing assets is one of the main sources of financing that business entities ultimately take advantage of. Current accounting guidelines require us to classify leases as either capital leases or operating leases; but this is on the verge of change due to the popular belief that current treatment and presentation does not give users of financial statements a faithful representation of leasing transactions. Not only does current treatment undermine what the true definition of an asset and a liability is, but it also hinders the ability to compare the various leased assets due to the distinct rules for classifying a lease as either operating or capital.

It’s never too early to start planning for such a significant accounting change in order to negate future costs and headaches.

For more information on the changes to lease accounting please click the 'Download Document' button.

Article Date: 15th December 2010

Firm: Linkenheimer LLP CPAs & Advisors

Added by: James Hickey