The recognition of leasing: the case of airlines companies

Abstract

On November 2017, the IASB (International Financial Reporting Standards) sets out a new rule for the recognition and measurement of the lease. This is the IFRS 16, replacing the old IAS 17. The new standard removes the lessee’s distinction between operating and financial lease and it will have a substantial impact for companies have previously kept a large proportion of their financing off balance sheets. At the same time, the FASB announced the new ASC Topic 842, replacing the old ASC Topic 840 for the same reasons. IFRS 16 purpose is to remove the so-called bright lines companies used to avoid capitalisation of leases and turns any attempt to hide lease liabilities off the balance sheet into a futile exercise to improve transparency of information. The new principles IFRS 16 and ASC Topic 842, the balance sheets will provide a more faithful representation of leases. According to an appreciation, in leasing contracts, world companies have about USD 3.3 trillion on its balance sheets. In these sectors, let’s see another advantage of IFRS 16 and ASC Topic 842, is also a better management of company resources, that increase the concept of the “supply chain management”, so helping managers to make better decisions in the aim of the firms.