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The lessee criteria for classifying a lease as a capital lease versus an operating lease are very specific. These provisions are often criticized because lease
The lessee criteria for classifying a lease as a capital lease versus an operating lease are very specific. These provisions are often criticized because lease agreements can be intentionally structured to fail all of the criteria. This allows companies to avoid capitalization when the substance of the transaction would indicate that capitalization should occur. It has been suggested that these specific criteria be replaced with more general guidelines. The theory is companies would be required to report based on economic substance rather than artificial, precise numerical guidelines, and more accurate financial statements would result. You are a senior accountant at the CPA firm of Floyd, Wong, and Frye. One of the partners in your firm is putting together a seminar on lease accounting, and he has called a meeting of all the professional staff. Hes asked everyone to be prepared to debate whether the current specific standards or the proposed more general standards will result in better financial reporting. What position will you take, and why? You should also respond to someone whose position differs from yours, and reply to someone who has responded by taking the same position you have
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