Analysis of Lease Financing Standards

Running head: ANALYSIS OF LEASE FINANCING STANDARDS
ANALYSIS OF LEASE FINANCING STANDARDS
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1ANALYSIS OF LEASE FINANCING STANDARDS
Effect of change in accounting standard for lease
The change in the accounting standard for lease deeply effect the companies, mainly
those companies, which have the significant level of leases financing in their business. This
changes effect the financial position and performance as well as the operations of the firm too
(Joubert, Garvie and Parle 2017). The change in the accounting standard for lease affects the
companies in following ways: -
 The change in the accounting policy affects the business model and the offerings in
respect of the needs of the lease and behaviour of the leases. This also affect the
existing market development of leasing.
 The change in the accounting policy affects the financial reporting of the firm as the
new standard nearly eliminates all the balance sheet accounting for lessees. This also
refined the mainly commonly used matrix like EBITDA and gearing ratio.
 Change in the lease accounting standard deeply influences the business process,
control and system of the lessees. Company need to apply the new approach to adopt
the changes made in the accounting standards.
Apart from the above- discussed effect of the change in the accounting standard for lease,
this change also affect the various aspect of the company in various way. In this respect, the
effect of the new accounting policy become important to compensate the issues of change.
Operating Lease
The AASB 117 allowed the firm classify its lease in both operating lease and financial
lease (Aasb 2019). Although, the companies classified its most of the lease contract as the
operating lease. The followings are the some main reason behind it: -
 The financial lease required a large cash outlay. Hence, if the company will not use
the equipment for the long- term then the large cash outlay does not make any sense