Lease Accounting and Financial Structures

Lease accounting governs the recognition, measurement and presentation of contractual arrangements in which one party conveys the right to use an asset to another for a specified period in exchange for consideration. Historically, operating leases were reported off-balance sheet, obscuring a firm’s true indebtedness. The shift to a single-model capitalisation approach under recent standards requires lessees to recognise a right-of-use asset alongside a corresponding lease liability. This change has reconfigured corporate balance sheets, influencing key ratios such as leverage, return on assets and debt covenants. Financial structures now routinely embed lease financing as a complement or alternative to debt and equity, offering firms flexibility in working capital management, tax planning and risk allocation. Innovative designs include contingent leases with payments or conversion features tied to performance thresholds, as well as convertible and defaultable-convertible arrangements that blend credit enhancements with equity options. These structures serve to optimise cost of capital, preserve borrowing capacity and align asset utilisation with cash-flow profiles. At the same time, lessors have adapted by developing dynamic models for pricing and risk sharing, integrating stochastic interest-rate processes and optimal stopping frameworks. The global adoption of revised lease standards has reinforced transparency, comparability and consistency, while also prompting research into economic consequences for financial stability, investment decisions and market behaviour.

Research from Nature Portfolio

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Lease Accounting and Financial Structures publication trend

The graph below shows the total number of articles in lease accounting and financial structures across all publications each year (not limited to Nature Index journals).

Technical terms

Right-of-use asset: The lessee’s recognised asset reflecting control of a leased item and its expected economic benefits.

Lease liability: The present value of future lease payments that a lessee is obliged to make under a contract.

Operating lease: A lease arrangement that does not transfer substantially all risks and rewards of ownership and is expensed as incurred.

Financial lease: A lease that transfers substantially all risks and rewards of asset ownership to the lessee, requiring capitalisation.

Contingent lease: A contract in which lease payments or conversion rights depend on predefined performance conditions or credit events.

References

1. Are U.S. GAAP-based and IFRS-based accounting amounts more comparable after the revised lease standards? Evidence from ASC 842 and IFRS 16. Review of Accounting Studies (2025).
2. Contingent convertible lease modeling and credit risk management. Financial Innovation (2022).
3. The Impact of a New Accounting Standard on Assets, Liabilities and Leverage of Companies: Evidence from Energy Industry. Energies (2022).
4. Modeling financial leasing by optimal stopping approach. Decisions in Economics and Finance (2024).