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IFRS and US GAAP, with Website: A Comprehensive Comparison by Steven E. Shamrock

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9

LEASES

PREFACE

In 2011, the Financial Accounting Standards Board and International Accounting Standards Board issued an Exposure Draft of a converged leasing standard. The standard is still being finalized; however, with few exceptions, under both IFRS and US GAAP, entities would be required to record a leased asset on its balance sheet regardless of the terms. Operating leases would cease to exist as an accounting concept. In broad terms, lessees would recognize a right-to-use asset offset by a lease obligation. The asset would be depreciated in a similar way to fixed assets but would be separated from general classifications. Lessors would be required to also recognize an asset to represent the right to receive cash flows (essentially a discounted receivable) and an obligation. The remainder of the cost of the asset leases would be carried on the balance sheet in property, plant, and equipment.

CURRENTLY EFFECTIVE STANDARDS

A lease, in business terms, is a right to use an asset for a specific period of time in exchange for cash or other consideration. At the end of the lease, the lessee (the party that pays and uses the asset) has the right and obligation to return the asset control back for the lessor (the party that owns the asset). In a more general sense, most people consider this rent.

The objective of financial reporting under both IFRS and US GAAP includes enabling the user of the financial statements to assess the amount, timing, and risk of cash flows. In a basic sense, ...

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