Impact of IAS-17 and AASB 117 Changes on Lease Accounting Practices

This report examines the amendments and implications of IAS-17 and AASB 117 in lease accounting. It discusses the classification of leases into finance and operating leases, highlighting the changes introduced by the new standards, including the impact on financial statements. The report details the key principles for accounting for finance leases at commencement, depreciation policies, and the treatment of operating leases. It also analyzes the introduction of IFRS 16, its superseding effect on IAS-17, and the new disclosure requirements. The report further analyzes the differences between IAS-17 and IFRS 16, focusing on the inclusion of all leases as capital leases, and the impact of off-balance sheet liabilities. It discusses the challenges faced by clients due to these changes, such as interpretation problems, changes in debt covenants, and increased capital expenditure, and provides recommendations on how firms should deal with these changes, including integrated financial reporting and detailed disclosures in the notes to accounts.

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Changes in IAS-17 and AASB 117

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Memorandum
To: A, B, C, clients in market
From: Name of the accountant in small accounting firm
CC: other related persons
Date: 16th, Sep, 2017
Subject: changes and application of new rules and amendment of IAS-17 and AASB 117
With the increasing ramification of economic changes and complexity in recording
financial and non-financial transactions, there is several amendment and circulations have been
issued by accounting bodies to change the accounting and reporting rules of organization. As per
the new rules and regulations issued by accounting authorities and bodies, financial lease is a
process for providing finance in which leasing company buys assets for the users and rent it to
them for the certain determined period. Finance lease as per the newly introduced IAS-17 has
been bifurcated into two following parts such as operating and financial lease. These both types
of lease is based on the formation of lease and undertaken terms and conditions by the leasers
and lessee.
Classification of lease
A lease is classified as fiancé lease if it transfers all the risks and rewards and incidents to
ownership. However, classification of lease depends upon the inception of lease. However, with

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the change in IAS-17 and applicability of AASB-117, there are following principles that should
be applied in the financial statement of lease.
At the time of commencement, finance lease should be recorded as assets at the lower of fair
value of assets and payment made by lease.
Depreciation charged on the assets and depreciation policies adopted by organization should
have leaser time than lease time.
In case of operating lease, all the expenses and amount paid should be charged from the profit
and loss accounts of company (Chand & Cummings, 2008).
Newly amended lease rules and regulations as per the IAS-17 and AASB-117
As per the newly introduced lease rules and standard. All the companies require
companies to bring majority of operating lease on the balance sheet. Property and other fixed
assets will be accounted for the lease from the time of right of use. In order to evaluate the lease
financial metrics, there are several measures such as gearing ratio, assets turnover and EBITDA.
In the latest amendment and notification issued by international financial reporting authorities, it
is considered that all the international lease and applicable rules and regulations of lease prepared
as per the IAS-17 will be superseded by IFRS 16 lease (Accounting, Part & Plans, 2015).
As per the newly introduced disclosure requirement of AASB-117, it is observed that there are
several disclosures which should be made by companies undertaking financial lease such as

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carrying amount of lease, reconciliation process of minimum lease amount or payment amount
and lease should be more than 5 years.
Critical analyze the main differences between IAS-17 and New IFRS (117) from the lease
perspective
AASB 117 lease provides details bifurcations which were not given under the IAS 17 and
it is particularly issued by IASB. In addition to this, the entire lease prepared by organization
should be covered as capital lease. In addition to this, contingent liabilities and other lease assets
which were shown under the off balance sheet liabilities will also be shown under the lease terms
and contingents. This AASB-117 also includes Australian-specific paragraphs which were
included by IAS-17 to increase the effectiveness of lease and establish harmonization in
international lease standards and GAAP accounting rules (Xu, et al. 2017).
Off balance sheet liabilities’
It is an accounting terms and impacts a company’s level of debts and liabilities. It is
observed that when company has doubt in its lease payment or contingent lease amount then the
entire amount which are supposed to be made should be written in the notes to accounts. These
levels of changes will increase the transparency and recording of lease amount while following
international and domestic rules (Tan‐Kantor, Abbott & Jubb, 2017).
Difficulties faced by clients with the newly change and adopted rules of IAS- 17 and AASB-117

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The changes in AASB-117 and amendment made in IAS-17 will change the all
conditions and requirement of lease agreements and recording of same in organization. This will
create the interpretation problems in handling client’s need and debt’s covenants. Recording of
assets at less than fair value and amount paid by clients will be recorded at the lowest of both in
the books of company (Holland, 2016). This will also reduce the lease payment to leaser. In
addition to this, off balance sheet liabilities rules and standards followed by companies in
Australia as per the AASB-117 will result to non-recording of contingent liabilities. This will
showcase negative result to debt holders while asking for their debt amount. Furthermore,
considering the entire lease amount as capital lease will also increase the capital expenditure and
increase the tax burden of company and profit as well. Therefore, it could be inferred that if
AASB-117 is followed by company then it will not only increase the overall recording and
disclosure requirement of company but also trim off the balance sheet of company in significant
manner.
How firm should deal with these level of changes in lease IAS-17 and AASB-117
It is evaluate that IASB body has issued various amendment and changes in its reporting
frameworks. It is observed that this level of changes and adoption of newly introduced AASB-
117 amendment could be adopted by company by issuing notices and adopting integrated
financial reporting standard. However, in order to avoid the interpretation problem in annual
report, company should add this information’s in its notes to accounts and circulating attached
appendix to its stakeholders along with its annual report (Knubley, 2010).

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References
Accounting, A., Part, B., & Plans, D. B. (2015). Notes to the financial statements.
Chand, P., & Cummings, L. (2008). The Political and Unstable Nature of the IASB's ‘Stable
Platform’: Post‐Convergence Australian Experience. Australian Accounting
Review, 18(3), 175-184.
Council, K. I. (2014). Annual Report 2015-2016.
Holland, D. (2016). Simplifying income recognition for not-for-profit entities. Governance
Directions, 68(11), 666.
Knubley, R. (2010). Proposed changes to lease accounting. Journal of Property Investment &
Finance, 28(5), 322-327.
Tan‐Kantor, A., Abbott, M., & Jubb, C. (2017). Accounting Choice and Theory in Crisis: The
Case of the Victorian Desalination Plant. Australian Accounting Review.
Xu, W., Xu, W., Davidson, R. A., Davidson, R. A., Cheong, C. S., & Cheong, C. S. (2017).
Converting financial statements: operating to capitalised leases. Pacific Accounting
Review, 29(1), 34-54.

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