Report on the Evaluation of IASB's Leases Exposure Draft Analysis

This report assesses the International Accounting Standards Board's (IASB) exposure draft on "Leases," evaluating its impact on financial reporting and transparency. The report examines the current lease accounting model's shortcomings and the IASB's proposed improvements, which aim to enhance the faithful representation of lease transactions in financial statements. The analysis incorporates three key regulatory theories: public interest, private interest, and capture theory. It reviews comments from four stakeholders—Asian Ship-owners’ forum, Washington Society of Certified Public Accountants, Chorus Aviation Inc., and Exxon Mobil Corporation—to understand their perspectives on the proposed changes. The report highlights the stakeholders' varying viewpoints, with some supporting the draft and others raising concerns about its practicality and potential complexities, particularly within specific industries. The conclusion summarizes the stakeholders' stance and emphasizes the overall focus on public interest in the proposed changes, aiming to improve financial statement users' access to and understanding of financial information.

Exposure Draft Evaluation

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Introduction
The 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 behaviour
The 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 of
accounting 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

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the 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 letters
IASB 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’ forum
The 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 on
their 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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Washington Society of Certified Public Accountants
The comments made by WSCPA for the exposure draft is affirmative. The committee has
agreed on almost all the proposed questions. Regarding the Type A and Type B of lease
accounting, committee has suggested to use alternative methods while considering the
depreciation methods as the value of the asset will depreciate with time. The committee
believes that the presence of additional disclosure will be helpful for the public.
However, the committee believes that the disclosure would not be too beneficial for the
smaller companies (Gettmann, 2019). Here, the suggestions made by the committee falls
under the public interest theory. The comments of the committee are in line with the
benefits that can be brought for the users of the financial statements. Several suggestions
that have been made by the committee for improvements in the lease accounting is also
focused on bring more clarity and avoiding any form of confusion for the users. One
important aspect was regarding the consideration of lease on the ground of economic
condition rather than terms and conditions enforced. The committee has responded that
the different recognition and measurement will be helpful as the changes in terms and
conditions can be brought without consequences to the involved parties.
Chorus Aviation Inc.
The company agrees on almost all aspects of the lease accounting as mentioned in the
exposure draft. However, it states that considering all the cost and complexities related
the lease in the financial statement will make it to complex and may not bring any
substantial benefit for the financial statement users. It has suggested some adjustments in
this regard saying that the requirements of additional disclosure can be made mentioned
in the financial statements and should be applicable for all the entities. Another concern
mentioned is regarding absence of transition of standards in the current exposure draft
(Clarke, 2013). The comment and suggestions mentioned by the company is in line with
the public interest theories. It has not made any effort to state anything that is for its own
benefits. It has commented on the changes while explaining how the changes will help
the users of the financial statements in understanding the statement. The company desires
to bring more clarity in the way the information is collected and presented in the
statement.

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Exxon Mobil Corporation
The company disagrees on the changes brought in the lease accounting standard stating
that this is likely to bring more confusion for the users. The company further states that in
the oil and gas industry, the common practice is to build resources with several partners.
The company considers the role of operator and other parties act as non-operators. Thus,
it is a case of inseparability where the operators focus on making the entire arrangements,
and non-operators make the payment. Thus it will increase the complexity. Further it
states that this change will reduce transparency contrary to expected otherwise from this
change (Mulva, 2013. The main concern of Exxon Mobil is regarding the complexity on
both the ends, users as well as the company. Here, the company is focused majorly
towards public interest theory with somewhat move towards private interest theory as
well. Whatever company has said to is with the justification on how it will not benefit the
users of the financial statements. It has also mentioned the issues brought in preparing
statement by the involved companies.
Conclusion
Overall, based on the assessment of the exposure document and the comments put
forward by the interested stakeholders, it can be said that some agrees on the changes and
some disagrees. Majority are agreeing to the changes, but they are also expected
substantial changes in different aspects of the requirement. Exxon Mobil does not seem to
be pleased from this proposed implementation at all as it has not brought about any
element that would be beneficial for any concerned parties. The focus of the majority of
the comments were towards public interest theories as the stakeholders stated everything
while bringing in reasoning on how it will help or not help the users of the financial
statement. The exposure draft itself comes under the purview of public interest theory as
the goal of entire changes in the lease accounting is to bring transparency and improve
ease for the users to get better accessibility to financial information.
References
Hantke-Domas, M. (2003). The public interest theory of regulation: non-existence or
misinterpretation?. European journal of law and economics, 15(2), 165-194.

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Sonoda, Y., Secretary General. (2013, September 20). IASB Proposals on Accounting
Standards for Lease Contracts - IFRS Exposure Draft ED/2013/6 [Letter to International
Accounting Standards Board]. Asian Shipowners' Forum, 10 Anson Road, #16-18
International Plaza, Singapore, Singapore.
Clarke, D., CA. (2013, September 12). Re: Comments on Exposure Draft ED/2013/6
[Letter to International Accounting Standards Board]. Chorus Aviation Inc, 310 Goudey
Drive, Halifax Stanfield, Enfield.
Gettmann, J. (2019). File reference no.: 2013-270 [Email].
Mulva, P. T., Vice President and Controller. (2013, September 13). File Reference: No.
2013-270, Leases - Topic 842 [Letter to Rusell Golden]. Exxon Mobil Corporation,
Irving, TX.
Gaffikin, M. (2005). Regulation as accounting theory.