Has the accounting distinction between financial and operating leases served any purpose?
It is today almost universally agreed that the accounting distinction between financial and operating leases has not served any purpose. As the accounting difference is based on fine mathematics, lessors and lessees world-over have devised leases which in essence are financial leases but qualify for operating lease definition. This is what prompted an Australian gentleman -McGregor – to make a cothetic argument against the financial-operating lease distinction. McGregor study became the basis for what is called “the new approach” to lease accounting. It is based on this approach that IAS 17 was revised with effect from 1999. Under the revised standard, disclosure is required for non-cancellable leases in the books of the lessee, irrespective of whether the lease is a financial lease or operating lease. In other words, as far as the lessee is concerned, accounting standards no more distinguish between a financial and an operating lease. Can the accounting distinction be used for tax law
