Leasing Revamp Chugs Forward

From The AAO Weblog

It’s been a while since I mentioned the FASB/IASB joint revamp of lease accounting. A quick update:

On December 7, the FASB and the IASB announced their selection of members of an international working group that will explore issues surrounding lease accounting.

(What do you think are the odds they’ll recommend that lease accounting should result in capitalization of an asset and recognition of an obligation more often than they currently do?)

The group will hold its first meeting in London on February 15. The objective of the Boards is to gather input from the Working Group members, deliberate those issues in 2007, and in 2008, issue for public comment “a discussion paper that explores lease accounting issues and describes the preliminary views of both Boards.”

It’s a useful project, one that I’m glad that the Boards are finally tackling. (I named it as one of my top five priorities in the 2005 FASAC survey and also in the 2004 FASAC survey, so I really mean it when I say I’m glad that it’s now being addressed.)

Let’s keep the project in perspective, at the same time. Any major reform of lease accounting rules that results in more recognition of assets and liabilities will shake up some people: it’s different from the status quo, and most of us just don’t welcome big changes in the way we look at things. You can be sure there will be howling opposition from those firms whose balance sheets will be most affected by any leasing revision. (And those who make a living from leasing property and equipment.) I’m sure we’ll be treated to more doomsday analyses from many quarters about the leverage being heaped upon balance sheets by upcoming standards. Just keep in mind that any new balance sheet appearance resulting from the project isn’t really new leverage; all else equal, it’ll be the display of leverage that already existed and is finally being shown. The best thing about the project is that it will put everyone on the same page – bondholders, ratings agencies and equity investors – when there’s a uniform picture of a firm’s leasing activities in the financial statements. That’ll be the biggest and best difference from current practice.

http://www.accountingobserver.com/blog/