Research and compare lease accounting standards under
IAS/IFRS and US GAAP. Discuss convergence challenges
Introduction:
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
Among the major differences between IAS/IFRS and US GAAP are the
standards relating to accounting for leases. Lease accounting has long been
considered an area that would benefit from international convergence and
comparability. However, bringing IAS/IFRS and US GAAP lease accounting
into alignment has proven difficult due to fundamental disagreements in the
underlying principles.
This paper will research and compare the lease accounting standards under
IAS/IFRS and US GAAP. It will examine the key differences between the two
sets of standards and how they treat leases differently. The challenges to
convergence between IAS/IFRS and US GAAP lease accounting will also be
discussed. Significant efforts toward convergence have been made but
fundamental differences remain.
IAS/IFRS Lease Accounting Standards:
The International Accounting Standards Board (IASB) issues International
Financial Reporting Standards (IFRS) which guide the accounting treatment
of leases under IAS/IFRS. The key IAS/IFRS lease accounting standards are:
- IAS 17 Leases
IAS 17 provides the fundamental principles for accounting for all leases. It
defines a lease as "an agreement whereby the lessor conveys to the lessee,
in return for a payment or series of payments, the right to use an asset for
an agreed period of time."
- IFRS 16 Leases
IFRS 16 was issued in 2016 and largely replaced IAS 17 as the standard
applying to lessee accounting for leases. IFRS 16 requires lessees to
recognize lease contracts on the balance sheet by recording a "right-of-use"
asset and corresponding lease liability.
Some key principles under IAS/IFRS lease accounting include:
- Classification - Leases are classified as either finance leases or operating
leases based on whether substantially all the risks and rewards incidental to
ownership are transferred.
- Finance Leases - Are recognized on the lessee's balance sheet as an asset
and liability. The leased asset is depreciated and the liability reduced over
the lease term in the income statement.
- Operating Leases - Are not recognized on the lessee's balance sheet. Rental
payments are recognized as an expense in the income statement on a
straight-line basis over the lease term.
- Lessor Accounting - Remains largely unchanged from IAS 17. Lessors
classify leases as finance or operating and account for them differently.
US GAAP Lease Accounting Standards:
The Financial Accounting Standards Board (FASB) establishes US GAAP which
provides the lease accounting guidance for companies using US standards.
The key US GAAP leases standards are:
- ASC 840 Leases
ASC 840 is the legacy standard addressing accounting for leases that was in
place until recently. It defined leases similarly to IAS 17 and used comparable
tests for classifying leases as operating or capital.
- ASC 842 Leases
Effective January 1, 2019, ASC 842 superseded ASC 840 and aligned lessee
accounting more with the principles established in IFRS 16. ASC 842 now
requires lessees to recognize operating and finance leases on the balance
sheet as ROU assets and corresponding liabilities.
Some key principles under US GAAP include:
- Lease classification - As either operating or capital (finance) leases based
on prescribed criteria equivalent to IAS 17 tests.
- Capital Leases - Recognized as assets and liabilities on the balance sheet
and depreciated over the lease term.
- Operating Leases - Were not recognized on the balance sheet under ASC
840 but now are under ASC 842, similar to IFRS 16 model.
- Lessor Accounting - Remains largely the same as under ASC 840, with
lessors also classifying leases as operating or capital and accounting for
them differently.
Comparison of IAS/IFRS and US GAAP Lease Accounting:
While IAS/IFRS and US GAAP lease accounting standards share many
similarities in their underlying principles, there are also some notable
differences:
Lease Definition:
- IAS 17/IFRS 16 definition focuses on conveyance of right to use asset for
period of time vs. ownership.
- ASC 840/842 definition emphasized transfer of control and risks/rewards of
ownership.
Lease Classification Tests:
- IAS 17/IFRS 16 quantitative tests use 90% and 75% thresholds of fair value.
- ASC 840 used qualitative and quantitative criteria without specific
thresholds.
ROU Asset/Liability Recognition (Lessee):
- IFRS 16 requires lessee to recognize all leases on balance sheet as ROU and
liability.
- ASC 842 converged to this approach but ASC 840 did not require operating
lease recognition.
Lessor Accounting:
- IAS 17/IFRS 16 lessor accounting remains largely unchanged from original
model.
- ASC 840/842 lessor accounting also remains largely consistent with some
exceptions.
Short-term Lease Exemption:
- IFRS 16 has exemption allowing not to recognize leases < 12 months as
assets/liabilities.
- ASC 842 exemption if leases < 12 months, no purchase option and
underlying asset < $5,000.
Convergence Challenges and Ongoing Efforts:
While lease accounting convergence has been ongoing for years, key issues
have made full convergence difficult:
Definition Differences
The differing definitions of a lease under each standard created challenges.
IASB's focus on right to use versus FASB's emphasis on risks/rewards/control
caused disagreements.
Classification Tests
The quantitative thresholds under IFRS made the tests more objective but
were resisted in the principles-based US GAAP framework.
ROU Asset/Liability Model
IASB pushed global adoption of lessee balance sheet recognition model while
FASB resisted until recently under pressure from SEC.
Short-term Exemption Differences
IASB/FASB could not agree on a uniform exemption for short-term leases,
creating ongoing divergence.
Principles vs. Rules
IASB favored principles-based standards while FASB gravitated toward giving
rules and thresholds, adding to difficulty harmonizing standards.
Despite many joint meetings and revisions to standards over the past
decade, IASB and FASB have not yet achieved complete convergence on all
aspects of lease accounting due to these fundamental conceptual differences
between the standards. Ongoing discussions are taking place but absolute
alignment may remain elusive. International companies must contend with
the divergent guidelines and reconcile results as needed.
Conclusion:
This paper has researched and compared the key differences between lease
accounting standards IAS 17/IFRS 16 and ASC 840/842 of the IASB and FASB
respectively. While convergence efforts have brought the models closer, such
as lessee balance sheet recognition, differences in definitions, classification
tests and exemptions continue to create challenges.
The underlying divergence in the principles-based vs. rules-based
approaches of IFRS and US GAAP has hindered full harmonization.
International lease accounting convergence remains a work in progress as
standard setters work to resolve open conceptual issues. Multinational
companies must reconcile leases reported under IAS/IFRS vs. US GAAP as
needed to get consistent results. Lease accounting remains an area where
further convergence would benefit global comparability and practices.
