corporate reporting：current issues

　　RELEVANT TO acca quali fication PAPER P2

　　One of the features of the Paper P2syllabus is a section on current issues.This is an area that can cover manydifferent areas，including：

　　·recently issued or revised financial reporting standards

　　·discussion papers and exposure drafts

　　·recent developments in international harmonisation

　　·Current business issues which impact financial reporting.

　　The Paper P2 exam typically includes a question dealing with current issues as the final question on the paper. The problem facing students is that there are many current issues，and so it is difficult to know where to focus study efforts. This article does not try to cover every current issue in the world of corporate reporting，but instead provides some information on three of the 'hot topics' that arise from documents issued by the International Accounting Standards Board （IASB）.We will look at the issues of leasing，income tax and management commentary as these are all the subjects of examinable documents for exams in 2010.

　　Leases

　　In March 2009，the IASB and the FASB（Financial Accounting Standards Board- the source of US GAAP）， published a discussion paper‘Leases：Preliminary Views’. This document is part of the IASB’s long-term convergence project，the aim of which is to eliminate a variety of differences between IFRS and US GAAP.

　　The aim of the leases project is to develop a new single approach to lease accounting that would ensure that all assets and liabilities arising under lease arrangements are recognised in the statement of financial position （balance sheet）.The topic of lease accounting has been long debated，with many preparers and users of financial statements claiming that the current treatment under IAS 17，Leases is too subjective and can too easily result in off-balance sheet finance.

　　The Discussion Paper is extremely significant，because it proposes a fundamental change in the way that leases are accounted for. It introduces the 'right-of-use' model，under which the lessee will recognise an asset and a liability for all leases entered into. This effectively eliminates the current category of an operating lease，and would ensure that all leases are treated in a consistent way. This change would have a massive impact in terms of financial reporting for the many companies who use operating leases within their business as all leases would now have to be recognised，with implications for measures such as return on capital employed and liquidity ratios.

　　The accounting treatment is explained as follows. The asset represents the lessee’s right to use the leased item for the lease term （hence the term ‘right-ofuse’model）and the liability represents the obligation to pay rentals. The asset would be initially recognised at cost，with cost defined as 'the present value of the lease payments discounted using the lessee’s incremental borrowing rate. The asset would be amortised over the shorter of the lease term and the economic life of the asset，or if the lessee expects to obtain the title to the asset at the end of the lease term，over the economic life of the asset.

　　The liability would be recognised initially at the same amount as the asset，ie‘the present value of the lease payments discounted using the lessee's incremental borrowing rate’. The liability would be subsequently amortised using an amortised cost-based approach.

　　The Discussion Paper also includes proposals on more complex issues，such as renewal options，contingent rentals，and residual value guarantees. All of the proposals are focused on lessee accounting. It is thought that lessor accounting will be dealt with once the tentative proposals in the Discussion Paper have been fully considered by the IASB.

　　To conclude on leases，if the proposals do eventually form the basis of a new financial reporting standard，it will be one of the most significant developments to arise from the IASB's convergence project. Having one method to account for all types of leases will go a long way to improve consistency and comparability，though some may argue that using one method for all types of lease is too simplistic. An Exposure Draft on leases is expected in the third quarter of 2010.