Accounting standards for leasing transactions : the implications on government accounting

Abstract

Purpose: The purpose of this study is to gain an insight into lease accounting by the Government of Malta as a lessee. Certainly, it involves an analysis of the way leasing transactions are presently accounted for but mainly the study examines how leasing transactions will be reported once accrual accounting is fully implemented, and thus IPSAS 13 becomes applicable. It reveals any transitional issues and investigates whether the application of IPSAS 13 will affect the quality of information shown in the financial statements. Design: The objectives of the study were achieved through personal interviews with seven government officials. These interviews were of a semi-structured format and discussed open-ended questions relating to the whole process of lease accounting, from the buy versus lease decision to the reporting in the financial statements. Findings: The study suggests that the adoption of IPSAS 13 is expected to result in a major improvement in the quality of lease reporting. Nonetheless, this transition involves high costs and issues which cannot be overlooked. Presently, some of the issues are due to the deficiencies in-built into the ‘modified accrual system’, which role is to ensure a smooth transition from a cash based to an accrual based system. Conclusions: It is concluded that essentially the Government needs to address these issues otherwise it will not benefit from the ‘modified accrual system’, progress further in the transition process, and ultimately achieve the expected quality level of lease reporting. Value: It is hoped that this study will encourage improvements in this area of government accounting. This can be accomplished by establishing policies with the aim to guide lease classification. Training is also important, even with respect to the constant revisions of the accounting standards and any related issues.