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Key Lessee and Lessor Decisions Made in the Lease Project
The FASB and IASB Boards met on June 13, 2012 in London and made key decisions on lessee and lessor accounting in their Lease Project. Although they finally decided all leases are not alike, they made a split decision as to how to classify them based on type of asset leased. The decision is bad news for most equipment lessees and possibly bad for lessors, with the only good news being for real estate lessees.
This was the last major decision-making meeting (there was one more meeting in July 2012) that was holding up drafting of the new Exposure Draft (“ED”). The timeline for the project is:
- Last decision-making meeting regarding remaining small issues in July 2012,
- Draft ED in third quarter 2012,
- Issue ED year end 2012 with 120-day comment period,
- Review comments letters and revise ED if necessary 2013,
- Issue final standard 2014,
- Effective date 2017 to allow lessees and lessors time to develop systems, extract lease data and prepare comparative financials under the new models.
Although the Boards were split with the FASB favoring a two-lease model and the IASB favoring a one-lease model, they took a second vote on whether compromise was possible to get a converged standard. In the second vote the majority agreed they could compromise on a two-lease model approach for both lessees and lessors with the same dividing line to determine which accounting approach to use. The ELFA and I have been advocating a two-lease approach since the outset of the Lease Project in 2006. It is a bit ironic that after six years they are virtually back to using current GAAP with operating leases capitalized, but with a set of new complex classification tests that are different for real estate and equipment. It appears that there is a lack of consistent treatment that should not be if the standard is principles based. Both equipment and real estate leases have the same legal treatment ' they are not considered loans from a legal perspective.
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