FASB’s position on leases standard is ‘insensitive’

I read your article from Nov. 10, 2021, “FASB Declines to Extend Nonpublic Lease Accounting Effective Date,” regarding the FASB meeting that same day.

It was very disappointing to hear the FASB’s decision and perhaps even more disappointing to listen to the board’s reasons.

FASB Chair Richard Jones said: “I would encourage all parties to get going on this.” This is insensitive at best to what nonpublic companies have to do “to get going on this.”

FASB’s staff saying “financial statement users are ready for reporting on leases by private companies to match that of their public company peers” is in the same vein of being generic without sensitivity to who these nonpublic entities are.

Without getting into opinions and perspective on the history of this standard going back how many years, it seems FASB needs a reality check as to who the entities are and who the actual users are relative to these entities.

It is an easy solution for the entities that have no necessity from “users” to follow FASB ASC Topic 842, Leases, to carve it out and create a GAAP exception. But it is the entities that have regulatory covenants and are required to have GAAS/GAAP financial statements and disclosures that are being injured by an accounting standard that has nothing to do with their operations or their regulatory purpose.

For example — and this has been brought up both to FASB (in written form and at the AICPA National Advanced Accounting and Auditing Technical Symposium) and to FASB’s Private Company Council — there are two regulated entities in California that are going to suffer because of the new standard. One is underwritten title companies regulated by the California Department of Insurance, and one is independent escrow companies regulated by the California Department of Financial Protection and Innovation.

Through no fault of their own, it is possible that entities will go from being in compliance with a regulatory covenant on Dec. 30, 2022, to being out of compliance on Dec. 31, 2022, with no change to the balance sheet.

The insensitivity I referred to above is that the majority of these entities — and I am guessing this includes the type of entities the Pennsylvania Institute of CPAs was writing on behalf of — are small privately owned companies that do not have accounting departments or even accounting personnel other than the owners who do their best at QuickBooks. They have no capability of doing the mechanics of the lease accounting standard, and so now they will have to pay more in accounting fees to us or to other similar professionals to be in compliance. The standard is not an easy one to implement. The more we have worked with it on a few clients, the more we have come to understand how complex it is.

Michael C. Haas, CPA
Haas and Dawe
Burbank, Calif.