Comments on: What I Meant in Accounting Education under IFRS http://profalbrecht.wordpress.com/2008/11/28/what-i-meant-in-accounting-education-under-ifrs/ Debits and credits of accounting professor David Albrecht Wed, 07 Oct 2009 00:42:26 +0000 http://wordpress.com/ hourly 1 By: David Albrecht http://profalbrecht.wordpress.com/2008/11/28/what-i-meant-in-accounting-education-under-ifrs/#comment-155 David Albrecht Sat, 29 Nov 2008 20:40:27 +0000 http://profalbrecht.wordpress.com/?p=1163#comment-155 The income smoothing takes place in when the initial decision is made on how to account for the lease. Since most reporting companies typically initiate many leases each year, the smoothing takes place at the portfolio level. This is different from what is taking place with fair value accounting and IFRS. In Europe, companies can elect to account for various types of securities on fair value or historical cost (held-to-maturity). In Europe under IFRS, companies can freely switch the accounting from fair value to historical cost and back again, on a security by security basis. And, going back to leases, it is possible to switch mid-stream from operating to capital, or vice versa. However, I think this switch should only be done once. It would never come to this, as there are typically so many new leases started each year that accounting changes would not need to be done. The income smoothing takes place in when the initial decision is made on how to account for the lease. Since most reporting companies typically initiate many leases each year, the smoothing takes place at the portfolio level.

This is different from what is taking place with fair value accounting and IFRS. In Europe, companies can elect to account for various types of securities on fair value or historical cost (held-to-maturity). In Europe under IFRS, companies can freely switch the accounting from fair value to historical cost and back again, on a security by security basis.

And, going back to leases, it is possible to switch mid-stream from operating to capital, or vice versa. However, I think this switch should only be done once. It would never come to this, as there are typically so many new leases started each year that accounting changes would not need to be done.

]]> By: Stephanie Campion http://profalbrecht.wordpress.com/2008/11/28/what-i-meant-in-accounting-education-under-ifrs/#comment-154 Stephanie Campion Sat, 29 Nov 2008 12:10:08 +0000 http://profalbrecht.wordpress.com/?p=1163#comment-154 Sorry, but I don't see how IFRS lease accounting can amount to income smoothing. You have to decide on a per-asset basis if it's an operating or finance lease, but once you've made your decision, you can't change it every year. Income smoothing means window-dressing the profits every quarter or year, not being free to decide the classification of transactions which will affect the long-term. Sorry, but I don’t see how IFRS lease accounting can amount to income smoothing. You have to decide on a per-asset basis if it’s an operating or finance lease, but once you’ve made your decision, you can’t change it every year. Income smoothing means window-dressing the profits every quarter or year, not being free to decide the classification of transactions which will affect the long-term.

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