The International Accounting Standards Board is finalizing a new standard that will require companies to bring leases onto the balance sheet. The new International Financial Reporting Standard (IFRS) on leases will also result in some changes to company income statements. The IASB has published a document (registration required) outlining the likely practical effects of the new IFRS on leases. The document also compares the IASB’s requirements to those of the Financial Accounting Standards Board (FASB).
Primary effects: “The main change that will be brought about by the new Leases Standard is an increase in assets and liabilities on the balance sheet for those companies that currently have a large amount of leases off balance sheet, thus improving the transparency of a company’s leverage and asset base,” says Hans Hoogervorst, IASB chairman. Among the likely effects on the income statement is the reporting of higher operating profit compared to the current requirements and in comparison to the FASB model. In terms of cash flow, there will be no changes to total cash flows, but, in the cash flow statement, the amount of operating cash will increase while the amount of financing cash will decrease.
Deliberations by the IASB on the new accounting model for leases will be completed this month, and the final standard is scheduled to be issued later this year.
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