engleski

THE POTENTIAL EFFECTS OF CHANGE IN LEASE ACCOUNTING MODEL ON COMPANIES' FINANCIAL POSITION

The existing accounting model of lease, as defined in IAS 17 – Leases, require the classification of leases on operating and finance leases. The operating lease is based on the assumption that all risks and benefits deriving from the leasehold subject remain with the lessor and that, accordingly, the subject of lease is recorded in the lessee's accounting records and recognized in its financial statements. In the operating lease, the lessee records in his accounting records only the rent relating to the current reporting period. The finance lease is based on the assumption that all the risks and benefits deriving from the ownership of the lease object are transferred from the lessor to the lessee, and accordingly, the subject of the lease is recorded in the accounting records of the lessee and is recognized in its financial statements. The lessee, in addition to the lease subject, credits a financial lease obligation in its financial statements, while the lessor recognizes the receivable on the basis of a finance lease. Many of the financial statements users have highlighted the negativeness of the operating lease accounting model, primarily because of the fact that the total liability on the basis of operating lease is not recognized in the statement of financial position, but only the part of the liability that relates to the current reporting period. Therefore, the financial statements of a business entity that use a particular asset on the basis of active operating leases do not faithfully display their financial position. In other words, the currently used accounting model of operating lease provides a covert indebtedness of a business entity holding certain assets under operating lease. In order to eliminate the deficiencies of the existing accounting model of lease, the IASB has developed a new accounting model of lease under which all rental contracts would be treated equally. A new accounting model of lease requires that the lessee recognizes the asset that is object of lease and the total lease liability in their financial statements, while the lessor retains the existing accounting model of lease which is based on the division of leases on operating and financial leases. This paper explores and analyses the potential effects of changes in the accounting model of lease on the financial position of business entities on the example of the listed companies in the Republic of Croatia.

lease accounting, operating lease, finance lease, financial position, Republic of Croatia

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