From the course: Accounting Foundations: Leases
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Continuing calls for change
From the course: Accounting Foundations: Leases
Continuing calls for change
- For many years, financial statement users have complained about the accounting for operating leases. Remember that these leases have been accounted for as rentals, with nothing showing up in the balance sheet. No leased asset, and no associated liability related to the obligation to make the contractual lease payments. This is a classic case of off-balance sheet financing. Obtaining the use of an asset, but not reporting in the balance sheet, where the money came from to buy that use. Now I have been teaching about off-balance sheet operating leases since 1990. And my students have always expressed surprise over the existence of such a large loophole in the accounting rules. Over the years, many proposals have been made to fix this loophole. For example, clear back in 1996, the accounting standard setters of the United States, the United Kingdom, Canada, Australia, and New Zealand proposed that the lease accounting rules be simplified to say, quote, "All lease…
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