Application Of New Rules And Amendment Of IAS-17 And AASB 117

Question: Discuss about the Changes And Application Of New Rules And Amendment Of IAS-17 And AASB 117. Answer: With the increasing ramification of economic changes and complexity in recording financial and non-financial transactions, there is several amendment and circulations have been issued by accounting bodies to change the accounting and reporting rules of organization. As per the new rules and regulations issued by accounting authorities and bodies, financial lease is a process for providing finance in which leasing company buys assets for the users and rent it to them for the certain determined period. Finance lease as per the newly introduced IAS-17 has been bifurcated into two following parts such as operating and financial lease. These both types of lease is based on the formation of lease and undertaken terms and conditions by the leasers and lessee. Classification of lease A lease is classified as fianc lease if it transfers all the risks and rewards and incidents to ownership. However, classification of lease depends upon the inception of lease. However, with the change in IAS-17 and applicability of AASB-117, there are following principles that should be applied in the financial statement of lease. At the time of commencement, finance lease should be recorded as assets at the lower of fair value of assets and payment made by lease. Depreciation charged on the assets and depreciation policies adopted by organization should have leaser time than lease time. In case of operating lease, all the expenses and amount paid should be charged from the profit and loss accounts of company (Chand Cummings, 2008). Newly amended lease rules and regulations as per the IAS-17 and AASB-117 As per the newly introduced lease rules and standard. All the companies require companies to bring majority of operating lease on the balance sheet. Property and other fixed assets will be accounted for the lease from the time of right of use. In order to evaluate the lease financial metrics, there are several measures such as gearing ratio, assets turnover and EBITDA. In the latest amendment and notification issued by international financial reporting authorities, it is considered that all the international lease and applicable rules and regulations of lease prepared as per the IAS-17 will be superseded by IFRS 16 lease (Accounting, Part Plans, 2015). As per the newly introduced disclosure requirement of AASB-117, it is observed that there are several disclosures which should be made by companies undertaking financial lease such as carrying amount of lease, reconciliation process of minimum lease amount or payment amount and lease should be more than 5 years. Critical analyze the main differences between IAS-17 and New IFRS (117) from the lease perspective AASB 117 lease provides details bifurcations which were not given under the IAS 17 and it is particularly issued by IASB. In addition to this, the entire lease prepared by organization should be covered as capital lease. In addition to this, contingent liabilities and other lease assets which were shown under the off balance sheet liabilities will also be shown under the lease terms and contingents. This AASB-117 also includes Australian-specific paragraphs which were included by IAS-17 to increase the effectiveness of lease and establish harmonization in international lease standards and GAAP accounting rules (Xu, et al. 2017). Off balance sheet liabilities It is an accounting terms and impacts a companys level of debts and liabilities. It is observed that when company has doubt in its lease payment or contingent lease amount then the entire amount which are supposed to be made should be written in the notes to accounts. These levels of changes will increase the transparency and recording of lease amount while following international and domestic rules (Tan?Kantor, Abbott Jubb, 2017). Difficulties faced by clients with the newly change and adopted rules of IAS- 17 and AASB-117 The changes in AASB-117 and amendment made in IAS-17 will change the all conditions and requirement of lease agreements and recording of same in organization. This will create the interpretation problems in handling clients need and debts covenants. Recording of assets at less than fair value and amount paid by clients will be recorded at the lowest of both in the books of company (Holland, 2016). This will also reduce the lease payment to leaser. In addition to this, off balance sheet liabilities rules and standards followed by companies in Australia as per the AASB-117 will result to non-recording of contingent liabilities. This will showcase negative result to debt holders while asking for their debt amount. Furthermore, considering the entire lease amount as capital lease will also increase the capital expenditure and increase the tax burden of company and profit as well. Therefore, it could be inferred that if AASB-117 is followed by company then it will not only increase the ov erall recording and disclosure requirement of company but also trim off the balance sheet of company in significant manner. How firm should deal with these level of changes in lease IAS-17 and AASB-117 It is evaluate that IASB body has issued various amendment and changes in its reporting frameworks. It is observed that this level of changes and adoption of newly introduced AASB-117 amendment could be adopted by company by issuing notices and adopting integrated financial reporting standard. However, in order to avoid the interpretation problem in annual report, company should add this informations in its notes to accounts and circulating attached appendix to its stakeholders along with its annual report (Knubley, 2010). References Accounting, A., Part, B., Plans, D. B. (2015). Notes to the financial statements. Chand, P., Cummings, L. (2008). The Political and Unstable Nature of the IASB's Stable Platform: Post?Convergence Australian Experience.Australian Accounting Review,18(3), 175-184. Council, K. I. (2014). Annual Report 2015-2016. Holland, D. (2016). Simplifying income recognition for not-for-profit entities.Governance Directions,68(11), 666. Knubley, R. (2010). Proposed changes to lease accounting.Journal of Property Investment Finance,28(5), 322-327. Tan?Kantor, A., Abbott, M., Jubb, C. (2017). Accounting Choice and Theory in Crisis: The Case of the Victorian Desalination Plant.Australian Accounting Review. Xu, W., Xu, W., Davidson, R. A., Davidson, R. A., Cheong, C. S., Cheong, C. S. (2017). Converting financial statements: operating to capitalised leases.Pacific Accounting Review,29(1), 34-54.