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FASB Issues Lease Accounting Discussion Paper Inviting You to Comment
Attention everyone ' you have the opportunity to influence your future. The FASB/IASB Boards issued a Discussion Paper titled Leases: Preliminary Views on March 19, 2009, inviting the public to comment by July 17, 2009. The paper is available on the FASB's Web site www.fasb.org. There are elements of the proposed new lease accounting rules that don't make sense and are detrimental to lessors and lessees. I think there is a good chance the Boards and their staff will listen and revise their approach, but it will only happen if they receive a good volume of substantive comment letters.
The project direction shifted to a point where much more will be capitalized by lessees due to capitalizing certain options and contingent rents. The impact to the industry will be far reaching if certain positions are not changed. Although the project is significantly behind schedule, the Boards still have 2011 as the target for issuance of the new lease accounting standard.
The new developments in the Lease Accounting Project are a negative for the industry as:
- “Fixing” the liability side of the balance sheet is a popular issue and will be accomplished by the proposed standard, but the asset, P&L, and cash flow treatment will not clearly represent the economic effects of a right-of-use lease to the lessee.
- Leases with very different economics will be accounted for the same. In many cases, the proposed rule will make a lease appear the same or worse than the accounting for a purchased asset financed by debt.
- More will be capitalized under a complex calculation with estimating the lease term, renewal payments, and contingent rents in the capitalization calculation. The requirement for continued adjusting of the estimates will be a burden.
- The proposed P&L treatment is complex and front ends lease expense.
- Complex deferred tax accounting will be required as the P&L treatment will not match the tax treatment.
The following is a synopsis of the discussion paper with my comments in italics.
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