Putting all material leases on the balance sheet

The IASB jointly with the US accounting standards setter (FASB) has released the Leases Exposure Draft ED 2010-9. The AASB will shortly re-issue the ED for Australian comment and we expect that this will be released in early November 2010. As anticipated, all ‘material’ leases will be required to be put on the balance sheet using the ‘right of use’ model, instead of the current finance or operating lease structures.

Apart from complicating the accounting for former operating leases, the impact on debt and banking covenants needs to be considered given that the new requirements could be applicable to all existing leases from June 2013 balancers (June 2012 comparatives). The exact application date will be subject to further debate and the IASB has not yet stated what it will do with its IFRS for SMEs accounting standard. Given the added complications of capitalising all leases on the balance sheet, it is hoped/expected that the smaller end of town will have the option to continue to record operating leases by way of note. Further details are contained in Technical Alert 2010-36.

For more information on the 30 June financial statements, contact your usual Grant Thornton advisor or the author of this article.

Author, Keith Reilly, August 2010

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