International Accounting Standards Board ( IASB) - Leases | Assignment


Added on  2019-09-30

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Exposure Draft Evaluation

1IntroductionThe exposure draft that has been considered for assessment is on “Leases”, and is published by the International Accounting Standards Board. Leases are considered as an important part of any business activities. It helps the businesses in several ways. It helps the business get more required assets for a temporary timer period. It helps obtain the finance for those who have additional assets. It also helps in reduction of the risks associated with asset ownership. Considering this level of importance, IASB has considered to bring more transparency as per the entry of lease accounting is concerned in the financial statements (IASB, 2013). The current models for the leases only requires that the lessors or lessees classify the leases only in two categories, namely, finance lease or operating lease. However, this has been criticized due to its inability to bring out faithful representation of the transactions related to leases. Specifically, this traditional form of entry does not consider any form assets or liabilities coming out of the operating leases. Therefore, considering the requests from the users of financial statements, IASB has decided to improve the accounting requirements. In this report, the assessment of the exposure draft along with the comments by four stakeholders have been conducted while considering three key theories, namely, public interest, private interest, and capture theory. Exposure draft and regulator behaviourThe public interest theory states that the focus of the regulation stays on the benefits for the public. As per the theory, the government regulations are brought in picture to overcome any form of disadvantages associated with imbalance in the operation of the market, results of the market that are not desired by the end users, or imperfect competition (Hantke-Domas, 2003). The current step to bring changes in the regulation ofaccounting requirements for the leases by IASB properly falls in the purview of public interest theory. The purpose of the legislation is to improve the transparency in the way leases are handled by the organizations and entered in the financial statements (IASB, 2013). This will help the users of the financial statements to understand the activities done by the companies regarding the leases. Moreover, it will also help them in understanding the assets or liabilities of the company at a certain point of time driven by

2the leases. Under this regulation, the lessees will be expected to enter the amount as liabilities for the asset it acquires for use. This is for the benefit of the public at large as they can make better decisions regarding any company on the financial ground, whether it is regarding purchasing share or any other associated financial investment decisions or non-financial decisions.Assessment of lettersIASB has requested for comments from the individuals and organizations on this exposure draft. The comment is expected regarding the agreeability or disagreeability on the proposal. In response to the IASB’s request, there are more than 650 comments from different organizations have been sent to the IASB till now. In this chapter, the focus is on selecting four respondents from different organization types such as companies, accounting bodies, companies, and others and assessment of the comments based on the three theories of regulations (public interest, private interest, and capture).Asian Ship-owners’ forumThe forum has stated that it would be quite difficult to consider lease in ship chartering. The charters and ship owners are two different entities but engaged with common ship. Thus, considering the chartering ship as the lease would not feasible as not all liabilities transfer to the charter while chartering the ship. As for instance, the charter is only using the ship till contract, and can cancel the contract for temporary period when not needed. Further, ship management is also done by the ship owners considering the economical and practical situation (Sonoda, 2013). Therefore, this inseparability creates issue in implementing this regulation. The suggestions made by the ship owners’ forum is in line with the private interest theory. As per the private interest theory, the individuals focus ontheir own benefits and not for the public. Here, the statements made by the forum is for the benefit of the businesses operating in ship industry only. Here, the focus is on companies and no focus is on the benefits or losses for users of financial statements (Gaffikin, 2005). As per the comment, it seems that forum is expecting detailed inclusion of different criteria while considering the lease accounting for the shipping industry.

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