Lease accounting: an inquiry into the origins of the capitalization model.

José Morales Díaz, Miguel Ángel Villacorta Hernández, Florentina Iulia Voicila


Both the IASB and the FASB have recently issued new lease accounting standards (IFRS 16/Topic 842) that have been applied by entities since the beginning of fiscal year 2019. The new standards introduce an important change in the lessee’s accounting model, impacting entities’ accounting ratios, systems, internal controls, etc. Lessees will have to apply a capitalization model for almost all lease operations. In other words, nearly all lease operations will be shown on the lessee’s balance sheet, and there will be very few off-balance sheet leases.

The aim of this paper is to explain the evolution of lease accounting standards from the beginning of the 20th century up until the present day, i.e. to analyze how this accounting area has evolved driven both by one of the basic accounting principles: “substance over form” (nowadays universally admitted), and also by the “utility paradigm”. While initially no leases were capitalized (following the legal form of the operations), subsequently (in the second stage) some of them did start to be capitalized (“finance leases”) under the assumption that they were very similar to financed purchases. Nowadays (under IFRS 16/Topic 842 – the third stage) almost all leases are capitalized for comparability and other reasons.

This is the accounting area in which the “substance over form” principle has been most widely applied in modern accounting history. We fundamentally use historical information from primary sources (historical accounting standards, pronouncements of accounting standards issuers, historical research works, etc.) and we focus on US GAAP and IFRS standards.

Palabras clave

IFRS 16, ASC Topic 842, Lease Accounting History.

Texto completo:



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