What is the theoretical basis for accounting standard that requires certain long-term leases to be capitalized by the lessee?

The theoretical basis for capitalizing certain long-term leases is rooted in the principle of substance over form, which emphasizes that financial statements should reflect the economic realities of transactions rather than just their legal form. This approach aligns with the concept of asset recognition, whereby leases that confer significant rights to use an asset should be recorded on the balance sheet, recognizing both the right-of-use asset and the corresponding lease liability. This ensures transparency and comparability in financial reporting, providing users with a clearer picture of a company's financial obligations and resources.