Under UK GAAP, Financial Reporting Standard 5 Reporting the
Substance of Transactions (‘FRS 5’) requires that all
transactions are reported in accordance with their substance rather
than purely their legal form. It excludes from its scope certain
types of transactions, including those dealt with specifically by
another SSAP or FRS, such as stand-alone leases within SSAP 21.
However, it explains that it covers accounting for lease
transactions in accordance with their substance in general terms,
and how to interpret SSAP 21 in the context of FRS 5, to ensure
that leases are appropriately classified as finance or operating in
accordance with their substance.
Consequently it is possible for a transaction that is not a
lease to be accounted for as if it were a lease. In addition, it
might be argued that FRS 5 (Application Note B, paragraph B20)
means that a lease should be accounted for as a loan, for example
by the lessee in a sale and finance leaseback, see
BLM16000.
International accounting standards require certain
transactions that do not take the legal form of a lease to be
accounted for as though they were leases. These transactions are
governed by IFRIC 4, see
BLM10025, and are taxed in the same way
as leases. Conversely, international standards can also require
certain transactions that do involve the legal form of a lease not
to be accounted for as a lease. SIC 27 provides guidance on such
transactions.
Under both UK GAAP and IFRS there are pronouncements that
apply to Private Finance Initiatives and similar transactions (FRS
5 Application Note F and IFRIC 12 respectively). Where these
pronouncements apply the transactions maybe accounted for, wholly
or in part, under the relevant non-leasing standard.
