Leasing transaction accounting classifications have a dramatic impact on reports of financial position and earnings. The AICPA Accounting Trends and Techniques €“2010 disclosed that 488 of the 500 companies surveyed (98%) had leases. During the early 2000s, a resurgence of interest in off-balance sheet financing took place in the economic environment, which placed a premium on asset return and return-on-equity ratios. This same interest continues today as companies contemplating financing often view the benefits of off- balance sheet accounting as a major factor in deciding whether to consummate a proposed lease.

Requirements
Review Subtopics 10 through 30 of ASC 840, Leases.
€¢ Review IAS 17, Leases, paragraphs 1€“ 35.
€¢ Review Ernst & Young€™s September 2012 Technical Line: Leases project on the brink of re- exposure that provides an overview of the Boards€™ deliberations on leases since the release of the ED in 2010. This publication can be found at www.ey.com/Publication/vwLUAssetsAL/ www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2403_Leases_6September2012/$ FILE/TechnicalLine_BB2403_ Leases_Leases_6September2012/$FILE/TechnicalLine_BB2403_Leases_ 6September2012. pdf.
€¢ Obtain Delta Airlines, Inc.€™s, Form10-K for the fiscal year ended December 31, 2011. Review the financial statements and the footnotes pertaining to leases. Use the following link: images. delta.com.edgesuite.net/delta/pdfs/annual_reports/edgesuite.net/delta/pdfs/annual_reports/DeltaAirLines_10K_2011. Pdf
Based on the reference material mentioned above, answer the following questions:
1. What are the advantages and disadvantages of the U.S. GAAP bright-line approach versus the IFRS conceptual approach in determining the classification of a lease?
2. With regard to the ED being considered by the Boards on the potential change to account for most leases on the balance sheet, provide the following:
a. What would be the impact on the financial statements of Delta Airlines, Inc. if all its leases were required to be recorded on the balance sheet, as currently being proposed by the Boards (assume that Delta consumes more than an insignificant portion of its leased airplanes)? Would this be an improvement in transparency?
b. Given the significance of operating leases in the airline industry and the potential impact on their financial reporting due to the proposed accounting model, would you expect these organizations to be engaged in the comment letter and outreach process? Why or why not?

Aircraft leases 651 241 219 92 797 98 Total aircraft 764 311 334 97 896 125 Operating leases total leased aircraft 85% 77% 66% 95% 89% 78% Operating leases as a total aircraft 80% 26% 35% 17% 63% 14% Total operating leased as a percentage of arcraft in percentage of fleet 815 914 625 548 1,262 710 Aidine Delta American Air France-KLM Southwest UAL Lufthansa