Lease Accounting Update

The February 28-29 joint International Accounting Standards Board (IASB) and Federal Accounting Standards Board (FASB) board meetings on leases focused on the continued objections from constituents to the 2010 exposure draft's proposed "front-loaded" lessee expense recognition pattern.


Importantly, it appears likely that there will be a new exposure draft (ED) that would possibly be released by June 2012, with a 120 day comment period. While the potential exists for large changes to the current approaches for lessee and lessor accounting methods, the two boards remain split on alternative methods for lessee accounting for inclusion in new ED. In addition, lessor accounting decisions are being questioned due to concerns about symmetry. Additional meetings are needed before the new ED can be completed, and the new rules are not likely to be issued until mid-2013. A transition date could be pushed back to 2016.


While there seems to be general agreement among board members that something should be done to address constituent concerns and that changes should be made to the tentative decision made in May 2011 to carry forward the "front loading" approach, the boards were unable to reach any tentative decisions and requested that the staff perform further outreach on two possible paths forward. The boards are clearly having a tough time deciding on the right method for lessee accounting, and we continue to work with our coalition to send a strong message to the boards regarding the importance of their understanding the negative economic the proposed lease accounting standards could have on the recovery.


In the links below, please find a March 2nd PWC publication, In brief: An overview of financial reporting developments. Also attached is a copy of a recently released, coalition sponsored report, The Economic Impact of the International Accounting Standards Board and Federal Accounting Standards Board Exposure Draft on Leases by Chang and Adams. This study indicates that IASB and FASB's proposed accounting standard would destroy up to 3.3 million U.S. jobs, minimize household earnings by as much as $7.8 billion annually, and shrink the GDP by up to $478.6 billion. Additionally, corporate real estate owners would lose as much as $14.8 billion in the value of their real estate. The measure would also balloon the apparent liabilities of U.S. publicly traded companies by $1.5 trillion, with approximately $1.1 trillion of this attributable to balance sheet recognition of real estate operating leases.
http://www.ncrealtors.org/uploads/RCA-Inbrief2011-04-FASB&IASBleases.pdf
http://www.ncrealtors.org/uploads/RCA-2012-02-08IASB-FASB-CAReport.pdf