Financial Accounting Business Report Research Paper

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Lease Accounting Changes

The author of this report is asked to answer to three major questions, all relating to the recent changes in accounting for leases under the Australian accounting standard both before and after the country's adherence of the IFRS (IFRS, 2013). The first point to answer to is the standard prior to the IFRS update relating to accounting for leases. The second point is to provide for the present approach taken by the Australian IFRS on the question of recognition, measurement, and presentation of leases and the reasoning behind said approach. Finally, a summary of future global developments relating to the changes with the current IASB standard for accounting for leases and how this all might affect the Australian standards going forward is also requested.

Questions Answered

Per a recent publication by PriceWaterhouseCoopers, there is a clear and precise explanation of the changes at hand and how things will differ going forward. As for the current standard, there a few things that can be pointed to in the PWC report. First, the pre-IFRS standards referred to the fact that lease term extensions that are optional in nature on the part of the client will be included in the valuation of the lease if there is a reasonable possibility that the client option will be elected. If it's clear that no such election will be forthcoming, it would have been excluded (PWC, 2013).

This did not change much with the new standards but a burden is now put on the lessee to consistently reassess what is "more likely than not to occur" as far as renewals go and that the accounting assumptions and figures should always be updated as things changed.

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It's basically the same as before, but both parties are now forced to vouch for what they believe will occur with the optional renewals and an overall timetable of the lease's ultimate length has to be hammered out as best as is possible by both parties to allow for proper valuation and accounting handling. The same set of rules, both old and new, basically apply to the lessor as well (PWC, 2013).

Under prior standards, option-to-buy and lease extensions were handled much the same way in terms of accounting and the new IFRS standard most certainly changes that. As far as contingent cash flows go and how this relates to leases, existing standards mandate that all contingent cash flows be included when making projections but the revised standards state only that reasonable projections be engaged in with there being no need to account for every possibility. On the same note, though, changes in estimate and circumstances would and should dictate that things be re-projected if/when the situation warrants it. An initial "reasonable" assessment should be done and then subsequent measurements should be undertaken when things change significantly in a way that would impact the lease's length or endgame (PWC, 2013).

As for the sale of a property from a lessee to a lessor, the sale would be effectuated from an accounting standpoint….....

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"Financial Accounting Business Report" (2013, September 02) Retrieved May 6, 2024, from
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