AS: New Standard on leases proposed by ICAI

The Institute of Chartered Accountants of India (ICAI) has proposed a new Accounting Standard (AS), AS 17, Leases. This new Standards shall replace AS 19, Leases once notified. The exposure draft of the Standard has also been issued. It has been drafted on

the basis of Indian Accounting Standards (Ind AS) 17, Leases which is already withdrawn w.e.f. April 1, 2019. Ind AS 116, Leases has succeeded Ind AS 17 w.e.f. April 1, 2019.

AS 17, Leases shall be applied for accounting of leases by lessee and lessor. Currently, AS compliant companies are required to comply with AS 19. There are differences between AS 17, Leases and AS 19, Leases. Key differences between them are as follows:

  1. Contrary to AS 19, AS 17 covers lease of land also.

  2. Lease of investments property and biological assets are not covered by AS 17. On the other hand, there are no such exclusions given in AS 19.

  3. AS 19 does not differentiate between 'inception of lease' and 'commencement of lease'. For AS 19, both are considered as different. Further, under AS 17, a lessee is required to recognise a finance lease at the commencement of the lease and AS 19 requires recognition at inception of the lease.

  4. Under AS 19, in case of a operating lease, lease payments are recognised as expense/income on straight line basis. However, AS 17 provides that if the lease payments are increased or decreased in line with the expected general inflation, lease payments can't be straight-lined. In such case, any other appropriate basis should be used.

  5. Treatment of initial direct costs incurred by lessor other than manufacturer or dealer, is not specifically given in AS 17. They shall automatically be included in lease receivables while determining implicit rate of interest of the lease. AS 19 provides that initial direct costs should be recognised either as expense or allocated against the finance income over the lease term.

  6. AS 17 specifically requires to classify lease liability as current and non-current. There is no such specific requirement in AS 19.

Click here to check complete exposure draft.

The exposure draft is open for comments till May 4, 2019.