Accounting treatment of lease liabilities

In future, companies will have to move their lease liabilities on to their balance sheets if the two main accounting rule-makers in the world action their joint proposal to change the way lease contracts are reported. Currently, the liabilities that companies incur from renting assets such as property can be kept off their balance sheets. The proposal also requires companies to account for any variable provisions in leases, such as the option to break or renew the lease.

Whilst it is unclear how big an impact (if any) this will have on the length of new leases, companies may opt for a shorter term to reduce the value of the reported lease liability.

 

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Jury O'Shea