Why standard setters (i.e. International Accounting Standard Board IASB) felt need to standardize the lease agreements? Discuss your answer through proper rationale.
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The International Accounting Standard Board felt need to standardize the lease agreements because of the following reasons.
Before the New Lease standard IFRAS 16, the lessee did not recognizes the operating lease as an asset and liability in the balance sheet.
The IASB felt that all the lease agreements should be incorporated in the balance sheet from the date of inception for recognition of asset and liability.
The lease liability should be estimated according to the tenure of the lease.
Contigental lease payments should be included in estimation of lease liability and lease assets for transparent financial position of the organization..
Lessee must reassess the lease period after occurrence of noteworthy event which in under his control.
The lease assets should be depreciated on the straight line basis including both operating and financial lease.
The new change in IFRS will have an effect on EBITDA that will increase the profit.