After long debate and delays, a revised exposure draft (ED) outlining proposed changes to the lease accounting rules has been released by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB).

The proposal aims to improve the quality and comparability of financial reporting by providing greater transparency about leverage, the assets an organisation uses in its operations and the risks around leasing transactions. Hans Hoogervorst, chairman of the IASB said: 'The development of an improved standard for leasing is vital. At present, investors must take an educated guess to determine the hidden leverage from leasing by using basic disclosures in financial statements and applying arbitrary multiples.'

The revised changes to lease accounting would require a lessee to recognise assets and liabilities for the rights and obligations created by leases. A lessee would recognize assets and liabilities for leases of more than 12 months.

The revised ED proposes a dual approach to the recognition, measurement and presentation of expenses and cash flows arising from a lease. For most real estate leases, a lessee would report a straight-line lease expense in its income statement. For most other leases, such as equipment or vehicles, a lessee would report amortisation of the asset separately from interest on the lease liability. The Boards are also proposing disclosures that should enable investors and other users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases.

This is a joint initiative between the US FASB and IASB, with each jurisdiction releasing separate EDs, although there are minimal differences between the two revisions and mainly relate to existing variances between US GAAP and International Financial Reporting Standards (IFRS), and the US approach to non-public entities.

The ED includes proposals on changes to how equipment and vehicle lessors would account for leases that are off-balance-sheet, which they claim would provide greater transparency about such lessors' exposure to credit risk and asset risk.The closing date for responses to the exposure draft is 13 September 2013.

IASB will be holding live webcasts on 20 May at 08.30 and 15.30 to discuss the proposals and field questions from interested stakeholders. Register HERE