® International Accounting Standards Board A History of Lease Accounting & the Need for Change Warren McGregor IASB member The views expressed in this presentation are those of the presenter, not those of the IASB

® History 1976 – FAS – IAS – G4+1 Recognition by Lessees of Assets and Liabilities Arising under Lease Contracts 1999 – G4+1 Leases: Implementation of a New Approach Improvements project

® History July 2006 – IASB & FASB add Leasing Project to agendas December 2006 – Joint Working Group formed February 2007 – First working group meeting held Boards begin deliberations

® Why do we need a new leasing standard? Current accounting standards are based on whether the lessee is economically like an outright owner This is inconsistent with the IASB’s & FASB’s concept of an asset; any entity that controls future economic benefits should recognise an asset – not just owners

® Why do we need a new leasing standard? Small distinctions result in fundamental differences in accounting  Operating leases off-balance sheet  Finance leases on-balance sheet Distinctions are arbitrary – causes lack of comparability

® Why do we need a new leasing standard? IAS 17 & FAS 13 are out of date and inconsistent with other standards and with current thinking Lease accounting literature is voluminous and complex, particularly in the US Opportunity for convergence

® Why do we need a new leasing standard? Leasing transactions are significant SEC Report – approximately $US 1.25 trillion (undiscounted) under non- cancellable operating leases not recognised on issuer balance sheets

® Why do we need a new leasing standard? The omission of assets and liabilities from lessee’s financial statements means they are incomplete Users routinely make estimated adjustments to take account of operating leases

® What will the leasing project cover? Fundamental revision of all aspects of lease accounting:  Lessee accounting  Lessor accounting  Ultimately all types of leases will be covered; but initially focus will be on scope of existing lease standards

® Next steps Board deliberations & working group meetings Discussion paper (DP) to be issued in 2008 DP to include:  Preliminary views of the boards  Invitation to comment Work on exposure draft to begin once responses received on DP

® Questions?