Accounting for leasehold property in the UK: A triumph of substance over form?

This paper is concerned with accounting for leasehold property. While property professionals are familiar with commercial and technical aspects of leases, recent proposals offer serious implications beyond the notional historical reporting of an entity’s financial position. Current proposals issued by the ASB will markedly impact upon the financial position reported by businesses holding leasehold properties, with consequent effects upon their reported profitability and their ability to raise finance. This paper examines the current position, whereby leases are regarded as either a finance or an operating lease. It then examines the conceptual framework in which accountants view the existing lease reporting provisions, examining the unease the current provisions cause. Finally, it discusses the most recent proposals and offers a commentary upon responses to them. It concludes with a warning to the owners and users of leasehold property to be ready for change ‐ or to make their voices known.