Analysis of Lease Accounting: Disclosure Rules Under AASB 117

This report provides a detailed analysis of lease disclosure requirements under AASB 117, focusing on both financial and operating leases. It emphasizes the importance of transparency and adherence to international reporting frameworks. The report discusses the reasons for following lease disclosure rules, including strengthening transparency and improving financial recording efficiency. It covers key aspects such as the disclosure of carrying amounts, reconciliation of lease payments, and contingent liabilities. The report also highlights the significance of accurately valuing lease assets and implementing proper assertion tests. Furthermore, it examines the specific disclosure requirements for both financial and operating leases, including net carrying amounts, lease expenses, and sales and leaseback transactions. The report concludes that compliance with AASB 117 is essential for transparent business functioning and notes that lease standards are continuously evolving to enhance transparency. Desklib offers a wealth of resources, including solved assignments and past papers, to support students in understanding and mastering these complex accounting standards.

Disclosure of Lease
Lease rules and applicable

Table of Contents
Introduction...........................................................................................................................................2

Introduction
There are several rules and regulations which need to be followed by company in
order to make the proper disclosure of the lease accounts. Lease is an agreement which is
signed by two or more parties where lessor gives lease payment or series payment to lease to
use assets for an agreed time period. The recording of the lease in the financial statement is
made as per the accounting standards AASB 117 (Henderson and O’Brien, 2017). This
accounting standards 117 disclosure of lease apply to entity that is required to prepare the
financial reports as per the corporation act and international accounting standards. Every
listed Company needs to establish the international reporting frameworks by setting the
harmonization in its domestic and international reporting frameworks (Lin and Graham,
2017).
Reason of following the lease disclosure rules and regulations
It is analyzed that every company needs to strengthen the transparency of the business
by disclosing the proper accounts in its financial statements. It is analyzed that company
needs to consistently make the disclosure in its books of accounts. However, the same will be
further analyzed by auditors to check whether company has complied with the applicable
rules and regulation and made the complete disclosure for the operating and financial lease
(Acito, Hogan and Mergenthaler, 2017). It will not only increase the overall recording
efficiency but also overcome the possible issues which company might have been facing in
the financial recording framework of the lease account (Warren and Jones, 2018).
There are two types of lease financial and operating lease. It is analyzed that financial
lease is the lease where all the risks and rewards of an assets are transferred and operating
lease is the lease other than the financial lease.
The international accounting standards Board issued the IAS 117 accounting
standards for the lease. As per the disclosure of the lease as per the IAS 117, leases of the
financial lease need to make the disclosure of the carrying amount of the assets,
reconciliation between the total minimum lease payment and present value of the assets (Le
Manh, 2017).

In section 35 of the AASB 117, disclosure of the lease of operating lease and all the
necessary imperative information which need to be disclosed have been given. It is analyzed
that lease must recognize the lease payment as expenses on the income statement. In
operating lease, any contingent liabilities which have been note down in the lease should be
disclosed by way of written note, if there is economic benefit in the recorded contingent
liabilities (Tran and Zhu, 2017).
True and fairness of the lease assets
It is the best method to reduce the overall cost of capital of the busienss. It is analyzed
that if company could use proper financial standards to make the proper level of disclosure.
However, the main issues arise when company fails to determine the right amount of value of
the assets. In addition to this, it also becomes cumbersome to implement the assertion test on
the lease assets. If proper assertion test is not undertaken then it may result to failure to
disclose proper value of the assets (Olesen and Cheng, 2017).
These AASB 117 rules and standards assists in recording the financial lease accounts
which will strengthen the reporting framework of the company on international level.
These types of assets are recorded in the books of account when company wants to
make the business more transparent. Ideally, the main objective of the AASB 117 disclosure
of the lease assets intended to make the busienss more transparent and strengthen the
international reporting frameworks (Vollmer, 2017).
In case of financial lease, following disclosure will be made in the reporting period in
the financial statement of company.
For each class of assets in the business, net carrying amount at the end of each
reporting period (Hoitash and Hoitash, 2017).
Company also need to disclose Reconciliation between the total future minimum lease
payments at the end of reporting period.
Company also needs to disclose the total of future lease payment for the last years in
the current year books of accounts.

If in lease, there is third party transactions associated with the lease payment and
work process then the same will be disclosed in the notes to accounts of company.
Company also needs to disclose the contingents rents recognized as expenses in the
accounting period (Qian et al., 2017).
In the list of the material disclosure of the lease, general description of the lease’s
material leasing arrangement including basis of the contingent rent. The notes to accounts and
exhibits shown in the books of account will be done in the financial statement to strengthen
the reporting framework of organization (Hussey, 2017).
These all the regulations and requirement shown in the books of accounts of company
will be disclosed as per the financial disclosure rules and regulations.
It is analyzed that all the details of the financial lease will be disclosed in the separate
exhibit and notes to the accounts will also be used to describe the proper classification of the
nature of the accounts and lease recording
In case of operating lease following details will be disclosed in the financial statement
of Company (Jarva and Silvola, 2017).
Lease shall, which is in addition to the meeting the requirement of lease 7 will make
the following disclosure in the operating lease of company.
For each class of assets classified under the operating lease will disclose the net
carrying amount at the end of each reporting period.
All the lease and sublease expense recognized in the books of account will also be
disclosed with the separate amount of the minimum lease payment, contingent rent and
sublease payment.
It is further observed that if the sales and leaseback transactions resulted to operation
lease then company needs to make the proper disclosure regarding the same in the books of
accounts of company.
If in the operating lease, fair value of assets is low as compared to the lease value at
the time of sales of assets then carrying amount and the fair value recorded in the books of
account shall be recognized immediately.

Therefore, it could be inferred that there are several lease rules and regulations which
forced company to reveal all the recorded in the operating and financial lease accounts. If
these leases are disclosed in proper manner then it will eventually add value to the transparent
busienss functioning. With the ramified changes in economic, AASB board have been
amending the lease rules and regulation for strengthening the transparency of the busienss.
Ideally, AASB 117 applies to the agreement that transfer the right to use the assets even when
the main interest and ownership is in the hand of lessor. However, an AASB standard does
not apply to the private companies and unlisted companies. In case of the sales contract and
hire purchase, lease agreement and AASB 117 disclosure recording frameworks will not be
applicable. After assessing the detail of the financial lease and its associate disclosure
requirements, it could be inferred that each and every listed company needs to comply with
the international rules regulations and should make the proper disclosure of its financial
details to make the business more transparent (Tran, and Zhu, 2017). There are several listed
companies such as Woolworth, GE Capital and Tesco which have followed IAS 117 rules
and regulation to make the proper disclosure. These all the regulations and requirement
shown in the books of accounts of company will be disclosed as per the financial disclosure
rules and regulations shown in IAS 117 and amended rules and regulation. After analysing all
the detail on the lease,, it could be inferred that lease standards are outdate. Lease agreements
have evolved considerably over the last 30 years. It is analyzed that FAS 13 force the lease to
be capitalized but it help lease companies to create more cunning operating lease. Each and
every company needs to analysis the mismanagement of the lease recording which may
impact the true and fair view of assets recording in the financial statement of company
(Hadley, 2017).

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