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Lease Project Possible Stalemate
The latest FASB/IASB Lease Accounting Project meetings on Feb. 28 and 29 had as objectives to change the lessee cost pattern to better reflect the economics (straight-line) and to see if that decision would mean changes to lessor accounting methods that had already been decided. The reason for the continued work on the lessee cost pattern is that most comment letters supported a straight-line cost pattern for what we call operating leases under current GAAP. The reason they would re-look at lessor accounting is the concern of many Board members that they consider the possible need for symmetry.
The Boards could not agree on a lessee accounting method, so they never got to the lessor/lessee symmetry issues. The lessee issue under consideration was the front-loaded cost pattern of the right of use (“ROU”) method for lessees whereby the ROU asset is amortized straight-line and interest is imputed versus the ROU liability amortizing using “effective interest method” amortization. The comment letters of virtually all preparers (lessees) and many users (lenders, debt analysts and equity analysts) received by the Boards said that there are two types of leases ' leases that transfer ownership (aka capital leases per current GAAP) and leases that merely transfer a temporary right of use (aka operating leases per current GAAP). The comments said further that the P&L cost pattern should be different with only former capital leases having a front-loaded cost pattern, while the former operating leases should have a level cost pattern. In other words, should there be two types of leases and lessee accounting methods with the ROU or former operating leases having a straight-line cost pattern? The FASB agrees, while the IASB does not. The IASB thinks that all leases should be accounted for the same, citing one of the Project's initial objectives ' to eliminate different accounting for similar leases that is an issue under FAS 13 with its bright-line PV test.
Three Alternative Methods
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