New Standard IPSAS 43 Leases-SMGC

IPSAS 43 Leases

Why IPSAS 43?

IPSAS 13 requires lessees and lessors to classify leases as either finance or operating leases. This is based on the risks and rewards incidental to the ownership model. Unlike finance leases, operating leases do not require lessees to recognise assets and liabilities.

In IPSAS 43, there is a single lessee accounting model for most leases with no distinction between finance and operating lease. Assets and liabilities related to the rights and obligations created by leases are required to be recognised.

In addition to revising the leasing requirements, IPSASB® decided to consider public sector issues including concessionary leases. A concessionary lease is one that an entity enters into at a below-market rate.

Changes to Lessee Accounting

IPSAS 43 requires lessees to recognise for most leases:

    • A right-of-use asset based on control over the underlying asset.IPSAS 13 requires the lessee to recognise the underlying asset only when the lease is categorised as a finance lease.

    • A lease liability as there is a present obligation to make future lease payments in accordance with the lease contract. When the lessee classifies the lease as an operating lease, it does not have to recognise a lease liability under IPSAS 13.

There are optional recognition exemptions available for short-term leases and leases of low-value assets provided they meet certain criteria.

Benefits of IPSAS 43

A key benefit of IPSAS 43 is that it increases comparability between financial statements of entities that buy assets from those entities that lease assets. Since there is a single lessee accounting model, IPSAS 43 eliminates information asymmetry that currently exists due to different lease classifications. The users no longer need to adjust the financial statements using different techniques.

Other areas in IPSAS 43

IPSAS 43 substantially carries forward the lessor accounting in IPSAS 13. There is guidance in the Standard on applying the definition of a lease, identifying a lease, lease modifications, sale and leaseback transactions, subleases and quantitative and qualitative disclosure requirements.

Effective Date

The effective date of IPSAS 43 is January 1, 2025. However, businesses who apply IPSAS 41, Financial Instruments, at or before the date of initial application of this standard, may apply it earlier.