Volume 18, No. 10


Please Re-Lease Me: New Accounting For Lessees:  Since 1976, lease accounting by lessees has been fairly consistent - which is to say, there hasn’t been much accounting for the assets used by lessees in their operations beyond the recognition of rental expense in the income statement. That’s because FASB Statement 13, “Accounting for Leases,” divided lease reporting into capital and operating leases. The capital lease treatment results in leased assets being reported on balance sheets and depreciated, along with a related lease obligation; the operating lease treatment showed no assets or liabilities on the balance sheet, but reported lease payments as rental expense. Being a “bright line” kind of standard - one whose application depended on meeting explicit criteria - Statement 13 resulted in minimal lessee recognition of leased assets and obligations.

IFRS lease accounting standard IAS 17 is less prescriptive than its U.S. counterpart, but produced similar results: a surfeit of operating leases, and a dearth of capital (or finance, in IFRS parlance) leases. In 2006, the FASB and the IASB started work on a joint project to remedy lessor and lessee accounting; to speed the process along, they decided in July 2008 to focus only on lessee accounting as a first phase. A “discussion paper” was issued in March 2009. If the provisions of the discussion paper become a final standard, balance sheets around the world will no longer be spared from showing the assets and obligations involved in producing returns - regardless of whether assets are leased or purchased.

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