The accounting fraternity has been wrestling with improvements to lease accounting since at least 1996, when the International Accounting Standards Board's (IASB's) predecessor released a discussion paper about removing the requirement to arbitrarily classify leases as 'operating' (off balance sheet) or 'financing' (on balance sheet). In August 2010, the IASB released an exposure draft on a common standard for the accounting treatment of leases that would force companies to report all lease obligations on their balance sheets.
a. Examine the arguments for and against the capitalisation of all leases.
b. Access the PwC publication and summarise the main findings in relation to leasing.
c. The proposed leasing standard is said to "move the profile of your EBITDA - because you've now got this big interest and depreciation cost that's below the line of EBITDA". Comparing the current accounting treatment of leases with the proposed treatment, justify this statement.
d. Assuming that the new leasing standard has been issued, access the most recent financial report for David Jones and appraise the impact of the standard on David Jones' financial performance and position.