Accounting for Leases: Fundamental Principles (Portfolio 5114)


Joseph Sebik

Director, Tax Reporting

Siemens Corporation

At a glance

I. Introduction and Perspectives
II. Current State of Lease Accounting
III. Definition and Classification of Leases
IV. Structures of Leases
V. Accounting for Leases From the Lessee's Perspective
VI. Accounting for Leases From the Lessor's Perspective


Bloomberg Tax Portfolio 5114, Accounting for Leases: Fundamental Principles (Accounting Policy and Practice Series), is the first in a three-part series on Accounting for Leases. This Portfolio surveys the complex lease accounting rules which affect both lessees and lessors. The Portfolio discusses the background of lease accounting and financial reporting rules, short and long-term lease accounting trends, and the current state of the lease accounting rules.

Generally Accepted Accounting Principles (GAAP) classify leases and prescribe accounting and disclosure requirements depending on a lease's classification. Leases must be classified from both the lessors and lessees perspective under overlapping but not completely symmetrical definitions. Definitions and terminology also may differ depending on how a lease is structured. This portfolio surveys the distinctly different accounting treatments followed by lessees and lessors, and how the accounting treatment provides substantially different reporting results, often as a result of minor structural changes in a lease.

Headline investigations of accounting improprieties at Enron Corporation and other companies revealed that some companies had exploited GAAP for leasing to achieve suspect “off-balance sheet” results. Policymakers reacted to these incidents by attempting to fix perceived problems in the rules. This Portfolio explains the nature of the changes that have occurred and how they have affected the structuring of complex leasing transactions. The Portfolio also addresses the nature of the changes to the guidelines that affect the structuring of more complex leasing transactions as a result of policymakers post-Enron attempt to fix the perceived problems associated with any off-balance sheet activity.

The Portfolio provides an overview of the disclosure requirements applicable to both lessees and lessors and includes sample disclosures. It may be cited as Bloomberg Tax Portfolio 5114, Sebik and Starczewski, Accounting for Leases: Fundamental Principles (Accounting Policy and Practice Series).

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