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Finance and Accounting - Essay Example

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Date Proposed changes under the Exposure Draft ED/2013/6 Leases The International Accounting Standards Board and the US Financial Accounting Standards Board publish the changes in this document jointly. The proposals are derived from facts such as insufficient information provided today…
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Finance and Accounting Essay
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Finance and Accounting

The funny bit about such adjustments is that they can be based on the annual expenses of operating leases (Arms 2010). On the other hand, they can as well be based on the undiscounted available future operating lease payments. These are normally available on the notes to the financial statements. Such is the information that is normally available to many users of the statements and the entire statement. The information is considered insufficient hence a recommendation that the adjustments be made repeatedly and even severally while measuring the same amount. This results into uniformity and quality decisions being made, in the process the populace would be in the position of rationalizing their information (Bell 2000). Secondly, it is argued that enhancing disclosure is never enough given enough consideration and those boards of most companies think and take such disclosures in a manner that it does not appear a substitute. The ED proposes that corporations report assets and liabilities as the failure to report or make such disclosures. The proposals further demand that the leased assets and liabilities always be computed and measured on discounted basis. The proposals require under this ED that the lessee reports all the assets and liabilities of an aggregate of the leases that have existed for a period of not less than 12 months in the balance sheet. This has the impact of a faithful representation of the lessee’s financial position (Fields 2002). In addition to such disclosures, there is an enhancement of transparency concerning the leverage of the lessee. The ED proposals demands that leases be classified as either Type A or Type B leases depending on whether they are property such as land and building and land or the leases are other than property such as equipment, aircraft, cars or tracks. For Type A leases, the right of use of the asset and the lease liability is recognized and the unwinding of the discount will be recognized separately from the amortization of the right to use. Type B leases on the other hand are recognized as Type B with a difference being on the recognition of the unwinding of the discount which is recognized as a single lease cost (Walton 2009). Under the proposals for Type A leases, the lessor will stop recognizing the asset and therefore recognize a right to receive lease payments and the residue of the assets. The lessor will also recognize the unwinding of the discount on both the residue of the assets and the lease receivable. Any profit relating to the lease will be to the advantage of the lessor. For type B leases the lessor will continue recognizing the underlying asset and recognize the lease income over the lease term (Exposure draft of implementation guidance to accompany draft FRS 103 insurance contracts: guidance for entities issuing insurance contracts on applying: draft FRS 103; the requirements or principles of FRS 102 to insurance contracts; and schedule 3 to, 2013). I measuring the value of the assets and the liabilities arising from a lease, variable lease payments would be abandoned and an inclusion would be made of optional periods if the values are of significant economic incentives and an option of being furthered (Fields 2002). For those other than he leases with this option, an accounting policy election is made by both the lessor and the lessee. ... Read More
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