Bristol Business School
Academic Year: 09/10
Assessment Period: August
Assessment Type: Referral Coursework
Module Leader:
Module Number:
Module Name:
Word Limit:
Ufuk Misirlioglu (UWE), Angie Ng Hui Chun (Taylors)
UMAC3N-20-3
Corporate Reporting Theory and Practice
2,000
Coursework Submission Date and Time:
Assignments are to be submitted by 2pm Monday 16 August 2010 at the
Programmes Office. Please be aware that there is NO 24hr or 10 day
window this year.
Deadline:
Monday 16 August 2010
14:00
Assignment Instruction:
A- ASSIGNMENT OBJECTIVES
This assignment seeks to assess your ability to:

Critically evaluate and discuss the new rules on leases issued by the IASB with
reference to the key proposal for lessee accounting.

Apply appropriate knowledge, analytical techniques and concepts to problems
and issues arising from both familiar and unfamiliar situations;

Think critically, examine problems and issues from a number of perspectives,
challenge viewpoints, ideas and concepts and make well-reasoned judgements;

Present, discuss and defend ideas, concepts and views effectively through formal
language.
B- BACKGROUND
In March 2009, the International Accounting Standards Board published a discussion
paper entitled, Leases: Preliminary Views (the DP) in relation to the ongoing joint
project on leases with the FASB. The main objectives of the DP are to propose a new
lease accounting standard to ensure that the assets and liabilities arising under lease
contracts are recognised in the statement of financial position. Under the existing
standard IAS 17 Leases, accounting for finance leases are treated in a different way
to operating leases. If a lease is classified as a finance lease, assets and liabilities
are recognised in the statement of financial position of the lessee as similar to
purchase of an underlying asset. For an operating lease, rentals are accounted for as
an expense in the lessee’s income statement. The Board believes that the existing
accounting model or leases fails to meet the need of users of financial statements.
For example, lessees do not reflect all liabilities on the statement of financial position.
The existing standard results in many assets and liabilities being off-balance sheet
even they fall into the board’s definitions of assets and liabilities (the right to use the
leased asset and the obligation to pay rentals). In addition using two very different
accounting models (the finance lease model and the operating lease model) reduces
comparability and increases inconsistency for users.
The board tentatively decided to adopt a new accounting model for leases. Under the
proposed model, the lessee would record an asset representing its right to use the
leased asset and a liability for its obligation to pay rentals. The proposed model
eliminates the distinction between finance and operating leases and recognizes all
leases on the statement of financial position. This is a fundamental change from
current practice in accounting, as it eliminates operating leases for lessees.
Operating leases would no longer be off-balance sheet. The asset (right to use) and
the liability (obligation to pay) would be measured at the present value of the lease
payments including a probability-weighted estimate of contingent rentals. In addition
the expected lease payments would be discounted using the lessee’s incremental
borrowing rate and assets are depreciated over the shorter of the lease term and the
economic life of the lease asset.
These main changes and other related issues proposed in the DP would have
significant indications for gearing or leverage ratios and other financial ratios such as
profit margin and return on assets. They also introduce significant judgment into
measurement. Some have argued that the “risk and rewards” concept associated
with ownership is more appropriate for recognition of an asset than the right-of-use
approach proposed in the DP. For example, when there is no purchase option, the
future economic benefits from the underlying asset do not flow to the lessee. There
are also other debates on the DP such as the selection of discount rates, exclusion of
short-term leases and recognition of contingent rentals that require a lessee to
determine the most likely rentals by considering the range of possible outcomes.
The Board plans to issue an exposure draft of a new lease accounting standard in
the second quarter of 2010. The current project plan envisages that a final Standard
will be issued in the second quarter of 2011. The DP published by the IASB and the
comment letters on the questions set out in the DP are available from www.iasb.org.
Required:
You are required to write a report for the CEO of a public group company after
reviewing the DP, relevant comments from interested parties1 and other related
sources. Assume that your company acts as lessee for land and building, and some
valuable plant and equipment and has both operating and finance leases. Your report
should include a discussion of the following issues that will need to be addressed for
the lessee.
1) Introduction of the DP:
a. Briefly explain the new accounting model for lessees and discuss its
significant aspects and issues indicated above.
2) Critical analysis of the DP:
a. Critically analyze the effects of the changes resulting from the
proposed model on your company’s financial statements.
b. Critically analyze whether the new lessee accounting can meet the
needs of users (investors, analysts and others that use financial
statements of the company) in terms of the qualitative characteristics
of financial statements, i.e. comparability, relevance, understandability
and reliability.
C- MARKING CRITERIA
1 See the entire Comment Letters on Discussion Paper on leases from www.iasb.org
Marking Criteria
Presentation: Clear, well-structured report,
Maximum Marks
10
with appropriate headings and approved style
referencing.
(Word count exceeding 2,000 words)
Introduction of the DP: Briefly explain the
(Deduct 10 marks)
30
new accounting model for lessees and
discuss its aspects and issues indicated
above.
Critical analysis of the DP:
a) Critically analyze the effects of the
30
changes resulting from the proposed
model on your company’s financial
statements.
b) Critically analyze whether the new
30
lessee accounting can meet the
needs of users (investors, analysts
and others that use financial
statements of the company) in terms
of the qualitative characteristics of
financial statements, i.e.
comparability, relevance,
understandability and reliability.
Total marks
100
D - GUIDELINES FOR COMPLETION AND SUBMISSION OF REPORT:
1. Please complete Bristol Business School ‘Assignment Front Sheet’.
2. The word limit is 2,000 words. You are not allowed to exceed the word limit under
any circumstances. If you exceed the word limit 10 marks will be deducted from
the total marks.
3. You should include a word count in the Assignment Front Sheet.
4. The Harvard system is used for the referencing style. Please see the library
Webpage at http://iskillzone.uwe.ac.uk.
5. The pages of the report should be numbered sequentially (e.g. page 1 of 12, etc.).
6. The pages of the report should be secured as follows:
 stapled in the top left hand corner; or
 held together with a plastic binder; or
 together with a plastic wallet.
7. SUBMISSION DEADLINE: A hard copy of the completed assignment should be
inserted into the appropriate assignment post box located near Cribs coffee shop
in the Business School by 2.00 p.m. on Monday 16th August 2010.
8. NEW REGULATIONS: Please note the deadline for assignment submission is
final. You will not be able to submit your work for marking or feedback after 2pm
on the submission date. If you have extenuating circumstances for failure to
submit, you must immediately consult a Student Adviser and complete the
appropriate form for consideration. Non submissions without reasonable and
accepted extenuating circumstances could affect your eligibility for referral
attempts and thus the completion of your degree. If you believe you are entitled to
additional time to complete assignments due to special conditions relating to
disability, please see Debbie Sturge (Leader of Student Support and Guidance
[email protected]) immediately to discuss whether these conditions
apply to your case. Adjustments cannot be made at the last minute. These rules
apply from September 2009 and override any previous arrangements. See
guidance on academic regulation on the UWE and BBS websites for further
information.
E - ASSIGNMENTS: STATEMENT ON ASSESSMENT OFFENCES
Plagiarism, collusion and non-compliance with assessment regulations are offences
under University regulations and where suspected, will be investigated under official
procedures. Penalties vary depending on the severity of the offence but can include
expulsion from the University.
Appropriate citation of source documents is essential when presenting written work
and it is crucial that you quote the books, journals, websites etc. that you used whilst
researching your work. Information about referencing is available from the Faculty
Librarian or the library WebPages at:
www.uwe.ac.uk//library/resources/general/info_study_skills/refs.htm
For further information, please see BBS Assessment Offence Guidelines for
Students.
F- RESOURCES:
1. Main sources
 Discussion Paper, DP/2009/1, Leases Preliminary Views, www.iasb.org
 Comment Letters on Leases Preliminary Views, www.iasb.org
 Further information accessible from www.iasb.org
2. Useful websites
 ACCA website: www.accaglobal.com
 ASB website: www.asb.org.uk
 CIMA website: www.cimaglobal.com
 FASB website: www.fasb.org
 IASB website: www.iasb.org
 IAS knowledge: www.iasknowledge.com
 IAS Plus: www.iasplus.com
 ICAEW website: www.icaew.co.uk
 UWE Library Services: http://www.uwe.ac.uk/library/
Also, visit websites of professional accountancy firms.
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Bristol Business School Academic Year: 09/10 Assessment Period