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October 23, 2011

Global business unaware of forthcoming lease accounting changes

Global businesses are unaware of the upcoming changes to lease accounting, expected to require moving all but short term-leases on to the balance sheet, according to Grant Thornton International’s business report.

The survey of 2,800 businesses globally found more than half (54%) of respondents are unaware of the upcoming changes to lease accounting on the back of the International Accounting Standards Board’s (IASB) and Financial Accounting Standards Board (FASB) convergence project with awareness regarding the project the highest in the US, 69% of businesses up to speed, followed by Turkey (14%).

However, the awareness of the changes was at a much lower rate in China (6%) and Denmark (8%).

Out of the businesses that were aware of the forthcoming changes, 33% thought they will increase cost and complexity while 15% thought it would increase transparency. 

The IASB and FASB are set to re-expose their latest lease proposal at the beginning of next year. Grant Thornton International chief executive Edward Nusbaum said the survey findings should give the boards pause for thought “as businesses are seeing costs and complexity in the proposals but are questioning whether there is any improvement in transparency”. 

“The boards have a difficult task, but we encourage them to look closely at two issues: first, whether the leasing proposal is sufficiently aligned with the ongoing review of revenue recognition; second, whether they have adequately distinguished leases from other types of contract which, under current standards, are not generally recognised in the financial statements at all,” he said.

 

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