Introduction to Leasing
The most common way businesses acquired equipment and software in 2018 was through leasing, which financed 24% of purchases (2019 Equipment Leasing & Finance Industry Horizon Report). The leasing market is large, with 50 countries responsible for $1.36 trillion in leasing volume in 2019 (White Clarke Group, Global Leasing Report, 2021).
So what is a lease?
IFRS 16 states that a lease is present if a contract, "conveys the right to control the use of an identified asset for a period of time in exchange for consideration." Leasing is thus a form of financing.
The lessor in a lease agreement is the entity granting the right to use the property.
The lessee in a lease agreement is the entity receiving the right to use the property.
Thus, if a CPA firm pays a monthly fee to rent the 5th floor of an office building from its owner, the CPA firm is the lessee and the owner of the office building is the lessor.
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