IFRS – IAS 17: Leases

The International Accounting Standards Committee (IASC) released International Accounting Standard 17 (IAS 17) to address the topic of accounting for leases.

Based on the different types of leases which are available, the presentation of them as an expense or capitalized on the balance sheet is one potential aspect which must be considered. Given the materiality of these items, this can have a measurable impact on a company’s perceived performance.

This standard applies to lessees and lessors alike. For the party utilizing the asset, the question of capitalization or expensing the item is the main item of focus. Based on this, a lease is classified as either an Operating Lease or a Finance Lease. Operating leases are expensed by the lessee, and capitalized by the lessor. Finance leases are capitalized by the lessee, and recognized as receivables.

IAS are principles based standards, rather than strict rules based standards that govern international accounting. IAS standards differ from IFRS standards in that they were introduced prior to 2001, whereas IFRS were produced after this date by the IASB, or the International Accounting Standards Board. When determining the hierarchy of these, the IAS is considered to be the building blocks in which the newer and more relevant IFRS are founded and therefore IFRS is more authoritative when these conflict.

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