CFM21150 - Accounting for corporate finance: International Accounting Standards: definitions: finance leases

Leases

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 an operating lease is not regarded as a financial instrument except in relation to individual payments currently due and payable. Rights and obligations in respect of future payments that arise from operating leases are within the scope of the disclosure provisions of IAS 32 and IFRS 7 (see CFM21050) in addition to the requirements of IAS 17.