The Ministry of Finance ("MOF") has recently issued the Accounting Standards for Business Enterprises No.21 – Leases (the "Standards") and distributed a circular at the same time to clarify when the Standards will enter into force.
The Standards introduce significant changes to the definition and identification of "leasing" and to the accounting treatment for lessee, while largely adopt existing rules on accounting treatment for lessor. Specific revisions are outlined as below. The first is improving the definition of leasing and adding contents in respect of the identification, division and consolidation of leasing. The second is cancelling the distinction between the operating lease and the finance lease of the lessee, and requiring the recognition of the right-of-use asset and the lease liability, for all leases (excluding short-term leases and leases of low-value assets). The third is optimizing the follow-up measurement for lessee and introducing the accounting treatment for circumstances in which the option re-evaluation or the leasing alteration arises. The fourth is expanding what information to be disclosed by lessors in order to make more useful information available to financial statement users. According to the circular, the Standards are set to take effect from January 1, 2019 for enterprises that have been listed both at home and abroad and those enterprises that are listed in an overseas market and prepare their financial statements based on the international financial reporting standards or the accounting standards for business enterprises, and from January 1, 2021 for other enterprises adopting accounting standards for business enterprises.