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September 13, 2013

ACCA rejects lease accounting proposals

The Association of Chartered Certified Accountants (ACCA) has called for the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to abandon their converged proposal for lease accounting, which is aimed at bringing leases on-balance sheet.

In response to the exposure draft issued by the standard setters, ACCA said the current proposed right-of-use model will make accounting more complex and time consuming.

Such method, in ACCA’s view, requires all leased tangible assets to go on the balance sheet of the lessee company, at an amount that represents their right to use throughout the duration of the lease.

ACCA head of corporate reporting Richard Martin said other alternatives should be considered such as the improvement of the IAS 17 system, in terms of strengthening disclosures and changing the threshold for recognising a finance lease.

‘The IAS 17 model needs to be updated to meet the needs of today’s financial world, but for users of the financial statements it’s fundamentally a much simpler approach than the proposed right-of-use method, which has now been debated on for more than four years," Martin said.

Martin said ACCA’s response supports straightforward treatments of lease terms and renewal options in order to create more transparency.

Martin, however, added: "Intangible assets are as much of importance as tangible ones, so continuing to exclude these from the proposed standard is not a helpful move by the IASB. The reasoning behind the exclusion is not entirely clear."

At a conference in Berlin this week, IASB chairman Hans Hoogervorst supported the convergence project on lease accounting and stressed that a majority of contracts are not recorded on the balance sheet, despite the fact they contain a heavy element of financing.

"For many companies, such as airlines and railways companies, the off balance sheet financing numbers can be quite substantial. It has been estimated that the hidden leverage in leases leads to an underestimation of long-term debt by some 20%. So we are not talking of small fry," Hoogervorst added.

The deadline to comment on IASB and FASB proposals expires today 13 September.

Related linkThe Association of Chartered Certified Accountants

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