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In response to the new millennium's financial accounting scandals, congress enacted the Sarbanes- Oxley act of 2002, which required the securities and exchange committee ("SEC") to study and report on the extent of off-balance sheet activities and arrangements, especially those resulting from leases. The SEC in 2005 reported that, approximately $1.25 trillion committed under operating lease contracts that were not reported on the balance sheet but were instead limited Only to be disclosed in the footnotes of the financial statements. Accordingly, the SEC requested the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to craft and issue a new standard with new rules to record more lessee's liabilities on the balance sheet. In a dramatic change approach, both boards (IASB and FASB) recently issued a joint standard on accounting for leases. This standard seeks to shift lease accounting from off the balance sheet to on the balance sheet In 2016 the IASB and FASB issued new rules that reconstruct lease accounting standards, these new rules focused mainly on recording the economic substance of lease contracts and moved away from the extensive bright line rules. The new rules stated that every lease for more than 12 months win be capitalized and recorded on the lessee’s balance sheet as reflecting both a “right of use asset” and a corresponding liability. The primary objective of this study is to determine whether the existing loopholes in the related lease accounting standards have permitted off-balance sheet activities and to identify whether the newly issued lease standards would help reducing the significance of such off-balance sheet activities. In order to meet such objective this study provides an overview of the history of the lease standards and the mechanism of the new rules, which are likely to have a great impact on the significance of off-balance sheet activities.
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