Leasing is an important activity for many entities. It is a means of gaining access to assets, of obtaining finance, and of reducing an entity’s exposure to the risks of asset ownership. The prevalence of leasing, therefore, means that it is important that users of financial statements have a complete and understandable picture of an entity’s leasing activities. The existing accounting models for leases require lessees and lessors to classify their leases as either finance leases or operating leases. A lessee is not required to recognise lease assets or liabilities for operating leases. Those models have been criticised for failing to meet the needs of users of financial statements because they do not always provide a faithful representation of leasing transactions. In particular, they omit important information about significant assets and liabilities arising from operating leases. As a result, many users of financial statements adjust the amounts presented in a lessee’s statement of financial position to reflect the assets and liabilities arising from operating leases.
This project is jointly conducted with the US-based Financial Accounting Standards Board (FASB).