RICS: The New Lease Accounting Rules
Published February 2011
The International Accounting Standards Board (IASB) has issued proposals on how leases are to be accounted for by listed companies and others that report under International Financial Reporting Standards. If the new model is adopted, as seems likely, it will remove the distinction between operating and financial leases. This means that most corporate occupiers will have to record their lease obligations on the balance sheet which will have a significant impact on their reported financial position.
The industry consultation period ended on 15 December 2010 and there is a widely held view that the proposed standard will be adopted, although the IASB could still make some final changes. It is reasonable to assume that the standard would apply from 2014 if not before. When changes are made to accounting standards companies are required to provide restated balance sheets for the previous 2 years, meaning than the lease assets and liabilities may need to be calculated by 2012.
This is clearly something which is going to have a major impact on companies that lease commercial property and their advisers.
These changes do not just affect those chartered surveyors advising corporates on a day to day basis, but also investment and leasing agents.
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