Interpretation and Application of IPSAS

10 Leases and Leasing Arrangements

Public sector entities may obtain financing from a number of different sources. While simple borrowing arrangements are easy to understand, financing can also be obtained as part of purchasing arrangements such as leasing and hire. These arrangements may vary significantly in nature, and may include complex sale and leaseback transactions.

Leases can be a major source of finance and it is therefore important that the financial statements provide sufficient information for users to be able to understand fully the substance of such transactions.

IPSAS 13 on leases sets out the treatment for reporting lease transactions and provides a framework for users of the financial statements to understand how an entity may access financing in the form of leases.

A “lease” is a transaction between two parties, a lessor and a lessee, whereby the right to use an asset is transferred to the lessee in return for a defined series of payments to the lessor (IPSAS 13.8).

Lease accounting generally applies even if under the terms of the lease the lessor provides substantial services in connection with the operation or maintenance of the asset. An example of such a service would be the provision of building facilities management for the asset (IPSAS 13.4).

Nevertheless, public sector bodies enter into a variety of arrangements which may combine the use of an asset and the provision of goods and services, some of which are not accounted for using lease guidance. ...