Essay - Accounting for Leases - the impact of AASB
Accounting for leases by Australian reporting entities will change with the application of AASB 16: Leases. IFRS 16 is effective 1 January 2019. Early application is permitted for companies that also apply IFRS 15 Revenue from Contracts with Customers.Read the following article and write an essay which addresses various questions (outlined below) that emanate from the article.
You are required to write an essay to demonstrate your understanding of accounting for leases. With reference to the most recent annual report from a large ASX listed company (for example, Qantas, Woolworths,Wesfarmers, Myer, David Jones, JB Hi-Fi, Harvey Norman)write an essay which examines accounting for leases, and the major expected changes that will come about with the application of the new leasing standard.
Your essay must include:
- Evidence of your understanding of lease arrangements and the impact on financial reports, including a demonstration of operating versus financial leases.
- Summarise the company you have chosen, including the value of leases as currently listed in the financial reports.
- Research on the impact that the accounting rules for leases might have on the company you have been assigned.
- A summary of the short and long term impacts of the changes to reporting for leases (e.g. financial statements and gearing ratios).
- You should also be able to demonstrate your understanding of lease arrangements for the industry of your company and the lifecycle and stage of the lease.
Note that in addressing the above points it may be helpful to consider the following questions:
(a) Why the Chairperson of the IASB believes that the former accounting standard for leases did 'not reflect economic reality'?
(b) Why under the former accounting standard were reporting entities' ‘off balance sheet lease liabilities up to 66 times greater than the debt reported on the balance sheet'?
(c) Why does the chairperson argue that under the former accounting standard there was 'no level playing field' between some airline companies?
(d) Why will the new accounting standards for leases ‘not be popular with everyone'.