leases and Their Accounting Standards

Question: Discuss about the leases and Their Accounting Standards. Answer: Introduction: The goal of the present assignment is to deal with leases and their accounting, that has developed as the sole matter and the changes made on behalf of the International Accounting Standard Board (IASB). Due to such a development, AASB 16 leases on or after the 1st of January, 2019, being the yearly reporting times, would replace the new level of accounting AASB 17 leases. Several documents related to accounting and consultation discussed different aspects of lease accounting. This was before the issue related to AASB leases. Spencer and Webb constitute one of the resources and have helped to carry out a significant review of literature of academic nature. The academic sources are on accounting and are related to operating leases. It can be said that the present assignment deals with providing a critique till that extent which discusses the significant features of financial information. This is in the disclosures for operating leases. The extent to which the source Spencer and Webb discusses the important aspects of economic information in the operating leases disclosures: For the last thirty years, the corporate leasing activities related to accounting have been both analysed and debated. In the present situation, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been involved in implementing the standards or benchmarks to facilitate the modification of financial reporting in connection to operating leases (Xu et al., 2017). The leases under consideration are treated as off-balance sheet item with regard to the Spencer and Webb conducted literature. This is for anticipating the after effect of any modification (AASB, 2015). The specialists have carried out the entire research to understand the reasons behind the appointment of firms in the case of operating leases and the effect of related information on the individuals who use them (AASB, 2015). Apart from this, the research personnel have carried out reviews on the different articles previously considered and associated directly with the concept of leasing. Going by the review reports the involvement of the organisations in the activities of the off-balance sheet to lease in portions is to manage the preparation of the financial statement. In compliance with the other researches, it is feasible to make utilisation of the operating leases to manage cost and also facilitate the saving of the overall capital. Ultimately, it is beneficial for the organisations itself. Specifically it can be said that the researches help in the revelation of credit rating agencies, the money-lenders, apart from this, the participants of the capital market have more in depth knowledge of the off-balance sheet leases and these ultimately help in the effective decision making (Annan, 2014). Spencer and Webb provide data about the existing proposals, the current standing of the divergence of the IASB and FASB along with the distribution of expenditures related to the operating leases. Careful observation has revealed that reporting has been recommended as the sole combined leasing expenditure whereas IASB suggested the non-distribution of the constituents of amortisation and interest (Carey, Potter Tanewski, 2014). Several recommendations by the IASB and the FASB have not been able to provide adequate importance to the operating lease expenditures. This is despite the fact that the non-distribution of information related to financing and operating activities is necessary. The regulators require the researchers point of view and hence their reviews. This is due to the fact that the reporting standards linked with operating leases are contradictory (Council, 2014). Operating lease treatment in connection to AASB 16: The leasing payments related to operating leases require to be realised in a systematic way or on a straight-line basis. Therefore, it can be said that it is essential for the leaser to implement other systematic bases for the operations if it is considered suitable. Additionally, it is important to identify the depreciation costs to help in the earning of the lease income in the form of expenditure (Wong Joshi, 2015). There is the necessity of adding costs to the assets carrying value. These costs are nothing but the operating direct costs incurred while obtaining the operating lease. The costs require to be realised in the form of an expense over lease or in the form of an identical basis similar to that of income. The depreciable asset is that asset which is subject to operating leases and it also needs to be inconsistent with the depreciation method which involves the leaser for the asset which is identical. The depreciation method for the asset needs to be inconsistent. It is a bsolutely crucial for the leaser to compute depreciation abiding by the AASB 116 and AASB 138. Apart from this, it is necessary for the leaser to apply AASB 136 to determine whether the operating lease could be accounted for impairment loss as well as subject to the leased conditions. It is relatively difficult for the manufacturer to track the profit from the asset sale at the time of the operating lease, as it is non-identical to the sales (Wong, Wong Jeter, 2016). It is required of the leaser that he consider and go through the differences in connection to operating lease as a fresh lease from successful modification date related to the accrued payment of lease of the actual lease as the portion of payments of the fresh lease. The leasers objective of disclosure constitutes the basis of the financial statement used to analyse the impact of leases on the complete financial performance, the condition offinances and the leasers cash flow. The aim intends to share the information with the help of notes accompanied by the information balance sheet, cash flow statement and income statement (Spencer Webb, 2015). Operating Lease Disclosure: The aim of the disclosure for the leaser to share the information in the form of notes and give access to information in the balance sheet statement, income statement and cash flow statement gives an insight to the effect of evaluation on the economic position due to leases. It is important for the leaser to disclose the amounts for the year of reporting in connection to profit or loss from the sales, the financial income connected to the net investment of lease as well as income related to variable payments of lease not at all relying on the index (Dakis, 2016). The credit ratings and consistency of accounting information are related deeply with the operating leases with the effect on operating leases risk. Spencer and Webbs research work reveals that the credit rating can be classified into seven categories which starts from AAA (1) to CCC or smaller (2). It has been found by the research personnel that there is some relevance of operating lease in connection to financial lease during reliability in the operating lease disclosures (Gas, 2016). It can also be added that pertinence of risk of the operating leases is affected by consistency pertaining to accounting information for describing the credit risk. In order to anticipate the amount of obligations connected to the operating lease, the mode of present value calculation takes into account the amount incurred for payments of lease, which is fixed over the term of lease (Holland, 2016). On the other hand, there is the existence of constructive capitalisation of operating lease. However, during the organisations different contracts of lease at different time periods, the amount of lease payment minimises gradually due to the contract expiry dates. Despite the re-categorisation of the constructive method and rating of credit, the findings and ratings hardly differ (Loyeung Matolcsy, 2015). Conclusion: It can be inferred that there is the existence of a strong association or connection between credit rating and the operating leases. It can be added that, the financial leases as well as the operating leases are processed in a similar way while determining the rating of credit. There is however the existence of considerable variation of the financial lease along with the operating lease risk approach. Further, the capital market indicates that the off-balance sheet operating lease is taken into account during the credit risk assessment. This is done to indicate results that are more reliable. It can be inferred from the study that the influence of capitalisation of operating lease on the rating of credit irrespective of the understanding and knowledge of operating lease disclosures due to several limitations. For example, it has been inferred that the reliability and consistency of the accounting information has tremendous effects on the risk approach in connection to the operating lease through the utilisation of the remnants of the lease contracts with the proxy for the accumulation of information, which is consistent. Both the FASB and IASB have initiated freshstandards of finance and accounting for those leases, which require the leasers to realise all assets. These include financial assets as well as operating leases under the financial position statement. In case, the authorities make this consideration of circumstances, the consistency of accounting information effects the pertinence of risk which is related to the operating lease. Such a detailed analysis and evaluation has facilitated the transfer of information in relation to capitalisation of operating leases. Thus, it can be concluded that much importance should be given to the detailed analysis and information collected on th e topics to help facilitate in important and valuable decisions. References: AASB, C. A. S. (2015). Investment Property. Annan, M. (2014).The Case of Lease Accounting(Doctoral dissertation, University of Amsterdam). Carey, P., Potter, B., Tanewski, G. (2014). AASB Research Report No. Council, K. I. (2014). Annual Report 2015-2016. Dakis, G. S. (2016). Upcoming changes to contributions and leasing standards.Governance Directions,68(2), 99. Gas, N. (2016). Significant Developments. Holland, D. (2016). Simplifying income recognition for not-for-profit entities.Governance Directions,68(11), 666. Loyeung, A., Matolcsy, Z. (2015). CFO's accounting talent, compensation and turnover.Accounting Finance,55(4), 1105-1134. Spencer, A.W. Webb, T.Z. (2015). Leases: A Review of Contemporary Academic Literature Relating to Lessees.Accounting Horizons,29(4), 997-1023. Wong, J., Wong, N., Jeter, D. C. (2016). The Economics of Accounting for Property Leases.Accounting Horizons,30(2), 239-254. Wong, K., Joshi, M. (2015). The impact of lease capitalisation on financial statements and key ratios: Evidence from Australia.Australasian Accounting Business Finance Journal,9(3), 27. Xu, W., Xu, W., Davidson, R.A., Davidson, R.A., Cheong, C.S. Cheong, C.S. (2017). Converting financial statements: operating to capitalised leases.Pacific Accounting Review,29(1), 34-54.