Accounting changes that bring most leases onto balance sheets have reshaped transparency and comparability across jurisdictions and industries. The International Accounting Standards Board of the IFRS Foundation stated that recognition of right-of-use assets and lease liabilities provides clearer information on entities’ financial positions, while the Financial Accounting Standards Board emphasized in its guidance that enhanced disclosure reduces off-balance-sheet risk. These authoritative statements explain why the topic matters for investors, creditors, regulators and communities whose economic activity depends on leased workplaces, storefronts and transportation fleets.
Recognition and Measurement
IFRS 16 implemented by the International Accounting Standards Board of the IFRS Foundation adopts a single lessee model requiring recognition of a right-of-use asset and a lease liability for most leases, removing operating lease off-balance-sheet treatment. The Financial Accounting Standards Board issued Accounting Standards Update guidance that also brings lease liabilities onto the balance sheet but retains a dual model with operating and finance lease classifications for presentation under US GAAP. Both standard setters, through staff analyses, allow limited exemptions for short-term leases and provide distinct guidance on discounting, which creates measurement divergence and complicates direct comparison of reported assets and liabilities.
Comparability and Market Effects
Differences in measurement, classification and disclosure have consequences for financial ratios, covenant testing and capital allocation. Research and staff papers from the International Accounting Standards Board staff and the Financial Accounting Standards Board staff document that leverage and EBITDA metrics change materially for retail chains and airlines where leasing is prevalent, influencing borrowing costs and contractual negotiations. Territorial patterns in leasing practices mean that firms in dense urban markets and regions with high commercial real estate activity experience more pronounced balance sheet shifts, affecting local employment and real estate development decisions.
The newly visible lease obligations improve overall transparency but reveal heterogeneity rooted in standards, measurement choices and cultural norms of contracting across countries. Regulators and market analysts rely on disclosures mandated by the IASB and FASB to adapt credit assessment models, while corporate managers in diverse cultural and territorial contexts reassess make-or-buy and lease-versus-own strategies in light of clearer, but not yet fully harmonized, financial reporting.
