Volume 22, No. 8: A New Lease Accounting Proposal: FASB Stars In “Groundhog Day”
Twenty years ago, the modern classic “Groundhog Day” told the story of a shallow jerk of a weatherman who was forced to live Groundhog Day over and over until he changed his ways for the better. A few years later, FASB wound up starring in their own version of “Groundhog Day” when they collaborated as part of the G4+1 (a predecessor of the IASB) on a discussion paper regarding a new approach to accounting for leases. The next iteration emerged in 2000, with a discussion paper on implementing the new approach struck in the first paper. In 2006, the FASB and IASB agreed to work on a joint project to develop a new standard, resulting in a new discussion paper in 2008, which lead to a jointly issued exposure draft in 2010. It was uniformly reviled by preparers, and investors weren’t pleased either.
In May, FASB started yet another “Groundhog Day” with the floating of yet another proposal. In all the time that’s passed on the leasing project, the need for improved lease accounting hasn’t diminished. There are still billions of dollars of invisible assets that don’t appear on firms’ balance sheets, producing overstated returns in the income state-ment. The new proposal aims to make all of those invisible assets visible, and it might succeed. It will, however, be enor-mously tedious to apply. Strangely, it still results in multiple ways to record leased assets that are not too far off from the lease classifications currently used. If a proposed standard doesn’t result in much-improved information for investors while costing preparers hours and dollars of implementation effort, there’s a good chance another “Groundhog Day” is ahead.
The Boards hope to complete a final standard in 2014, and require its implementation in 2017. The comment period for the proposal ends in September 2013. Whether or not FASB’s “Groundhog Day” continues will be determined after the comment period.