Under IAS 17,
Leases, a finance lease contract is
regarded as a contract for payments that are substantially the same
as those under a loan agreement. A finance lease is therefore a
financial instrument.
An operating lease, on the other hand, is regarded under IAS
17 as primarily an uncompleted contract committing the lessor to
provide use of an asset in future periods in consideration of a
fee. The lessor, therefore, continues to account for the leased
asset itself rather than any amount receivable in the future under
the contract. Thus the only operating lease assets and liabilities
recognised in accordance with IAS 17 are the individual payments
currently due and payable. However, rights and obligations in
respect of future payments that arise from operating leases are
financial instruments, even though they are not at present
recognised in financial statements, and so are included under the
disclosure provisions of IAS 32 or FRS 7 (see
CFM16005) in addition to IAS 17.
