The conceptuaal framework and accounting for leases

For years, users of financial statements, academics and standards setters alike have criticized the lease accounting standards as unnecessarily complex and ineffective in portraying liabilities arising from lease contracts in the balance sheets of lessee enterprises. Recognizing that current standards were adopted before the FASB and other standard-setting bodies completed their conceptual framework projects, critics of the lease accounting standards contend that the principal defect in existing standards is that they are at variance with the definitions of assets and liabilities in those frameworks. This paper proposes a decision model for choosing between 2 alternative interpretations of the definitions of assets and liabilities in a leasing context, illustrates the effects on the basic financial statements of a lessee enterprise of applying these 2 alternative interpretations and evaluates the results using the decision model.