Lease Accounting Gets A New Lease On Life: The convergence movement between the FASB and the IASB has been stumbling recently over the treatment of financial instruments: the FASB pushes for more fair value reporting of financial instruments, while the IASB opts for more traditional amortized cost treatments. When it comes to other convergence projects, however, they’re moving full speed ahead, and in total lockstep. Revenue recognition is one example. Another is their joint project on lease accounting. An exposure draft released in mid-August paves the way for lease accounting that will be similar under the two standard-setters’ rules.
The accounting won’t be too similar to what’s been in existence in the U.S. since 1976, however. Operating leases won’t operate any longer; lessee balance sheets will show assets and obligations that had always existed in an “off-balance sheet” state. That shouldn’t surprise anyone who’s familiar with the 2009 discussion paper on lessee accounting: it proposed the demise of operating leases. What really is new, however, is that this exposure draft also contains freshened accounting for lessors. Much will change for both lessees and lessors, and it will change with a big bang: there’s no gradual grandfathering transition approach contained in the exposure draft. When the standard goes into effect, there will be a catch-up that puts all firms on the same footing at the same time.