Essay on Business Standards For Lease Accounting Standards

Essay on Business Standards For Lease Accounting Standards

Length: 1232 words (3.5 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

Different type of organizations lease its assets, whether it’s private, public or non-profit. Because it’s an important activity for many organizations, lease accounting standard needs to provide users of financial statements a faithful representation of an entity’s leasing activity (FASB, Financial Accounting Standards Board). Currently, the accounting standard model requires the lessees or lessor to classify their lease as capital leases or operating leases and it should be accounted differently. This topic has always been a controversial for many people because the current accounting standards for leases allows corporations to use the off-balance sheet financing technique, which for many organizations those numbers that are not reported on the balance sheet can be substantial (IFRS, International Financial Reporting Standards). Hence, it has been a concern for many investors.
A brief overview of Accounting for Leases
Leasing has quite a history and is known to be controversial. Many believe leasing is a controversial topic because it has been criticized that the accounting model do not meet the needs of financial statement users by not providing a faithful representation about transactions relating leases (FASB, Financial Accounting Standards Board). In 1976, FASB released the Statement of Financial Accounting Standards (SFAS) No. 13 – “Accounting for leases” that allow corporations to use off-balance sheet financing. It states that the lessee is not required to recognize assets or liabilities relating to the lease on its balance sheet. Instead, it recognize it as an expense as it becomes payable.
In 2005, the US Securities and Exchange Commission (SEC) estimated that US public companies may have approximately $1.25 tr...


... middle of paper ...


...ctures of the organization for the investors and creditors. According to Hans Hoogervorst, Chairman of the IASB, stated “The most important difference is that the new Standard will provide a richer set of information for investors than is available today, which, in turn, will aid their decision making.” (IFRS).
Moreover, it will also increases the cost for many organizations. It will have a major impact on businesses who leases their assets because they’re being forced to recognize liabilities for operating lease onto their balance sheet. This will create more leverage being added to the balance sheet. Hence this will increase the organizations’ financial leverage ratios and reduces their ability to attract financing (Gcmllp.com).
My opinion
Moving forward Lease accounting will continue to be more complex and difficult for organization to adopt the new standards.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Fasb Vs. Fasb 's Report On Lease Accounting Standards Essay

- In 2010 and 2013, the FASB, in connection with the IASB, released exposure drafts outlining upcoming changes to lease accounting standards. This draft was in direct response to the SEC’s 2005 report outlining the problems associated with off-balance sheet transactions (FASB and IASB, 2013). The SEC’s main concern was that business managers are intentionally negotiating lease terms that do not actually meet FASB bright-line rules for capitalization, but in all other aspects, should be capitalized....   [tags: Balance sheet, Asset, Lease, Liability]

Better Essays
701 words (2 pages)

Essay about Case Analysis : Lease Minimum Payment

- Companies use leases in order to obtain assets that would potentially cost them more to own or negative to use credit to obtain. Leasing has a reputation amongst individuals who cannot obtain the entire information of the companies use of the lease due to the accounting treatment it has. This can lead to false representations in the financial statements. With the International Accounting Board (IASB) that creates and approves financial reporting standards proposed change to the accounting methods for lease purposes, this can provide a curve to how companies record the transaction....   [tags: Balance sheet, Income statement, Finance lease]

Better Essays
1230 words (3.5 pages)

The International Financial Reporting Standards Essay

- It is a known fact that the differences in culture, language, religion, education, ideology and politics around the world necessitate the variety of accounting rules and standards. However, it is imperative that a single set of standards for the reporting of financial statements should be in place. Admittedly, with the significant growth of the cross-border business and trade, if the companies are equipped with a set of high-quality accounting standards they will not only improve financial reporting across the globe but also will be able to enhance the consistency, comparability, and efficiency of their financial statements....   [tags: International Financial Reporting Standards]

Better Essays
1302 words (3.7 pages)

Is The Accounting Boot Camp? Essay

- I recently graduated last year with a Bachelors of science in Health Service Management. Almost 99 percent of my course works were all related to health care. The only classes with a little math was my statistics class and my quantitative method class. Honestly speaking, I have never taking any accounting class except the accounting boot camp I took on the 15th of this month. I have not personally work on accounting reports, journalizing of accounting transactions, entering or reviewing source accounting data, and analyzing financial statements....   [tags: Generally Accepted Accounting Principles, Asset]

Better Essays
833 words (2.4 pages)

Essay on Proposed Accounting Standards Changes and Their Effects on

- ... There are specific areas that will receive the most signifiant changes. For instance, revenue would be recognized only from the transfer of goods or services to a customer. This alteration would affect some long-term contracts. Percentage-of -completion revenue recognition could be permitted but solely when the customer or client owns the work-in-progress as it is constructed (Journal of Accountancy, July 24, 2010). There would also be a requirement for a company to account for all distinct goods or services....   [tags: revenue, transactions, contracts]

Better Essays
824 words (2.4 pages)

Corporate Lease Is Better For An Organization Or Does It Create Financial Turmoil?

- Introduction This presentation is to determine whether or not if an operating lease is better for an organization or does it create financial turmoil. Schroeder et al (2011) states that firms use alternative means of acquiring long term assets, mainly through leasing. The use of a lease can also be used for inappropriate misconduct on behalf of management. In the business environment, firms use one of two types of leases; capital and operating. Determining which lease is more beneficial for an entity, depends on the organization’s missions and goals....   [tags: Balance sheet]

Better Essays
1243 words (3.6 pages)

Enron's Fraudulent Accounting and Financial Information Essay

- Published financial information is issued to meet the needs and demands of their users. These range from Shareholders who will check on what direction the company is heading, whether it has achieved healthy profits, that it's solvent, the value of the company and possible signs of failure. Other users are the employees, who will want to check the statements to see whether their jobs are safe and see if possible, whether there could be wage and pension increases. This report offers information on operating results and financial conditions of companies to stakeholders as well as to shareholders....   [tags: essays research papers]

Better Essays
988 words (2.8 pages)

Essay on The Need for Accounting Standards

- What would financial statements look like if there were no accounting standards?” Accounting standards are a set of principle that govern current accounting practice and are used as a reference to determine the appropriate treatment of complex transactions. Having financial statements in the same format allow them to be compared and in this essay we shall discuss how the accounting standards came about, and why it continues to exist until this very day, as the format of such practice has changed dramatically over the years as they are now used as a reference when problems occur....   [tags: Accounting Standards Research]

Better Essays
3298 words (9.4 pages)

Essay about Improving Accounting Standards in Australia

- Introduction Intangible assets have become increasingly noticeable with accounting due to the larger amounts linked to patents, franchises and brands. Although these items are not purchasable they are generated within an organization and sometimes account for huge differences between market capitalization and book values. Over the years, the International Accounting Standards Board has focused on the uniformity of accounting standards. However, these standards will only be appreciated across the board if they are of unquestionable integrity....   [tags: Assets, Standards]

Better Essays
2624 words (7.5 pages)

Essay on Accounting Standards

- The Federal Government, State and Local Governments (SLG), and Not-for-profit organizations (NFP) all have unique objectives and assets under their control. As a result it may not be feasible to develop a single set of accounting standards that accurately represents all of their financial activity in a manner that is useful to concerned parties. To resolve these discrepancies three separate standard setting bodies have been tasked with developing Generally Accepted Accounting Principles (GAAP) for these different organizations: The Federal Accounting Standards Advisory Board (FASAB) for federal accounting, the Governmental Accounting Standards Board (GASB) for SLG, and the Financial Accounti...   [tags: Business Finance Accounting]

Better Essays
1374 words (3.9 pages)