Zambezi company want to update its production process and the Director General feel that technology-led production is the only way in which the company can remain competitive. On 1 may 2020, Zambezi entered into a lease for a property and a leasing arrangement was established. However, the financial statements have not shown a lease or liability to date. A new finance director joined Zambezi shortly before the financial year end of 30 April 2021 and presently reviewing the financial statements to prepare for the upcoming audit and to begin making a loan application to finance the new technology. The financial director feels that the lease relating to both the property should be recognized in the statements of financial position, but the Director general, who did a brief accountancy course ten years ago, strongly disagrees. The Director general wishes to charge the rental payment to the profit or loss. The Director general feels that the arrangement does not meet the criteria for recognition in the statement of financial position, and has made it clearer that showing the lease in the statement of financial position could endanger both the companys upcoming loan application and the finance directors future prospect at Zambezi.

Required Discuss the ethical and accounting issues which face the finance director in the above situation and advise on the appropriate accounting treatment for the lease.