• Tinne Christensen
This report concerns the lease accounting referring to the international regulations (IFRS) in the field. Through several years the present regulation in the field IAS 17 has attracted criticism from various sources. The criticism has especially been focused on the classification test of the leased assets. The test is based on several subjective assessments and provides the lessee with the opportunity to design a contract so that a desired classification is achieved.
Leasing has developed into an attractive financing alternative with great accounting-related amounts involved. That is why an unambiguous and clear regulation is necessary in this field. Because of that The Boards (IASB and FASB) has started working on developing a new, common accounting standard. This has been a lengthy process since the subject has appeared to be controversial and involves a conflict of interests. The process has been characterized by a large number of meetings and invitations to comment on discussion papers and exposure drafts in order to make the legislative work as close to the accounting practice as possible. In 2010 the Exposure Draft 2010 was published, and it confronted the previous accounting practice in the field in several ways. ED 2010 was heavily criticized and the legislative work continued until May 2013, where The Boards published a revised draft ED 2013.
The purpose of this report is to examine the way in which the present regulations under IAS 17 are inappropriate in relation to fulfilling the financial statement users' needs for information and whether the proposal for a new accounting standard ED 2013 improves the basis for fulfilment of the financial statement users' needs for information
The first part of the report explains the present regulations within the field and the unsuitability for the financial statement user. The assessment of the unsuitability is based on the present criticism of IAS 17. The global transport and logistics company DSV A/S is furthermore involved in an analysis of the effect of recognition of operational leasing contracts in the company's accounting. It is concluded that the present regulation under IAS 17 is unsuitable for fulfilment of the financial statement users' needs for information and that an incorrect classification of a leasing contract will have a relatively large effect on both profit and loss account, balance as well as selected financial key figures.
The second part of the report explains the contents of ED 2013 and the potential for improvement in relation to fulfilment of the financial statement users' needs for information. The potential for improvement is assessed based on comment letters on ED 2013. Again the for DSV A/S accounting is involved in an analysis of the effect of ED 2013 on the company's profit and loss statement, balance and key figures. It is concluded that the company appears with a fairer view of the company's financial statement, than under the present regulation.
It can be concluded that it is a complex problem area that by necessity requires a comprehensive regulation. The purpose of ED 2013 is assessed to improve the basis for fulfilment of the financial statement users' needs for information, but the principled approach to the legislation work, which is utilized especially by the IASB, is assessed not to be suitable in this situation. The principled approach increases the complexity and the degree of subsequent assessments and estimates which are to be undertaken by the lessee. Instead a more rule-based approach with a higher degree of micromanagement is recommended. In this way an individual accounting practice may not develop based on subjective assessments and individual objectives as with the circumstances under the present regulation.
Publication date5 May 2014
Number of pages106
ID: 197323961