Accounting for Leases ‐ The Major Issues

Following six years consideration of the problem, and the production of at least two widely circulated early versions of the proposed exposure draft, the ASC formally published ED 29 in October 1981. ED 29 deals with accounting for leases, but excludes contentious lease contracts concerning rights to explore for or to exploit natural resources and similarly it does not cover licencing agreements for films, patents, copyrights etc. The exposure draft requires capitalisation of finance lease contracts in the accounts of lessees, is broadly consistent with the American, Canadian and International standards and compatible with, but more restrictive than, the Australian exposure draft (which permits, but does not require, capitalisation). In spite of the gestation period, the prior consultation with interested parties and the restricted coverage of the ED, its proposals are controversial and have provoked reaction from both lessors and lessees in the UK. Lease accounting, clearly, is not a simple matter. Indeed leasing arrangements raise many questions which encompass fundamental conceptual issues in accounting and finance. Any resolution of these issues, such as ED 29, in turn gives rise to problems of application.