FASB and the International Accounting Standards Board (IASB) unveiled a joint proposal to revamp lease accounting. The proposal (available at tinyurl.com/34jqlgt) would result in a single “right-of-use” approach applied consistently to lease accounting for lessees and lessors. Among other changes, the approach would result in the liability for payments under all lease contracts within the scope of the standard and the right to use the underlying asset being included on the lessee’s balance sheet. The standard setters say the changes would improve the information available to investors and other financial statement users about the economics surrounding lease contracts.
Unlike their discussion paper, Leases: Preliminary Views (available at tinyurl.com/lugqe2), published in March 2009, which focused primarily on lessee accounting, the exposure draft, Leases, would result in changes on both sides of a lease transaction. The proposal includes simplified accounting for short-term leases—leases having a maximum term of 12 months or less. The simplified accounting would allow lessees to ignore the effects of interest on the recorded assets and liabilities and allow the lessee to record the liability for lease payments at the undiscounted amount for lease payments.
Under current U.S. GAAP and IFRS requirements, financial reporting for lease contracts depends on the classification of a lease. When a contract is classified as an operating lease, the lessee does not record any assets or liabilities on its balance sheet. The current approaches can also allow two similar leases to be accounted for in very different ways if they fall just over the line into operating or capital leases, FASB Acting Chairman Leslie Seidman said in an interview.
“The proposal would remedy both of those criticisms by saying that in all cases the lessee needs to record an asset and a liability for the present value of the expected lease payments,” she said. “And the liability will represent an obligation to make lease payments, and the asset will represent a right to use a leased asset.”
The proposal is open for comment until Dec. 15 and is available via the “Comment on a Proposal” section on www.ifrs.org or the FASB “Exposure Documents Open for Comment” page on fasb.org. FASB and the IASB have said June 2011 is their target date for a final standard.
FASB’s technical director, Russell Golden, was appointed to the FASB board effective Oct. 1, filling a seat left vacant by the departure of Chairman Bob Herz. In late August, the Financial Accounting Foundation (FAF) Board of Trustees announced Herz’s retirement and a restructuring that will expand FASB’s board from five to seven members. Herz’s term was scheduled to expire in mid-2012. FASB board member Leslie Seidman was named acting chairman.
As FASB’s technical director, Golden held “primary responsibility for overseeing FASB staff work on all standards-setting projects, including major global and domestic projects and technical application and implementation of financial accounting and reporting standards,” FASB said in a press release. He also has been chair of FASB’s Emerging Issues Task Force. Golden was named technical director of FASB in June 2008 after serving in various roles at the organization as a member of the senior staff. Prior to joining FASB, he was a partner at Deloitte & Touche LLP in the National Office Accounting Services department. He is a licensed CPA in the states of Washington and Connecticut.
FASB previously operated with seven board members from its inception in 1973 until 2008. The return to a seven-member board will happen as soon as board members can be recruited and seated. FAF expects that could happen in early 2011.
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