Lease is one of the important aspects of a company’s financials. IASB and FASB are working together to enhance the accounting for leases. In order to satisfy this goal, IASB and FASB realise that a customer or the lessee of leasing assets should recognise assets and liabilities originating from those leases (including leases that are off balance sheet today). IASB and FASB jointly published an announced Exposure Draft Leases (the 2013 ED) in May 2013. IASB and FASB acknowledged comprehensive feedback on their proposals, and have heard an extensive scope of views. Since March 2014, IASB and FASB have reconsidered almost all features of the project. This report will evaluate the impact of new proposed standard to Spotless Group Holdings Limited. Moreover, recommended changes will also given to maintain the financial performance of the company.
Many leases were classified as operating leases and were allowed off balance sheet because the applicable accounting guidance has generally allowed lessees to do so. FASB and IFRS are working together to launch a new project regarding leasing activities. The purpose of this research is to find the improvements (if any) of having few changes in accounting for leases.
Despite of its relevance and reliability, the standard should be applied consistently with adequate available information to the users. FASB and IFRS are still working hand in hand to generate a new lease standard by the end of this year. However, the implementation will not be in effect until 2018.
Proposed Changes to Accounting for Leases
Under new proposal, lessees would be required to recognize assets and liabilities on their balance sheets related to leases (except for short-term leases, whi...
... middle of paper ...
...ndicator of company’s performance. In balance sheet, lease assets and lease liabilities will increase since there will be no more of recognising operating lease (in which expensed straight away). They will have to depreciate and also amortise the assets. Furthermore, in income statement, EBITDA will be higher, higher operating profit, as well as higher finance costs. There will be no change in cash flow statement since operating activities will increase as well as the financing activities, assuming interest is reported under operating activities. Ultimately, as these changes will be implemented, there will also be some changes in key ratios (i.e. ROA, ROE), increase in cost of borrowing, affect debt covenants as well as compliance with regulatory capital requirement. Some recommended changes are provided for Spotless to restructure how they finance their operations.
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