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Lease Accounting Standard Set for Publication on February 25

The FASB is a week away from publishing its long-awaited standard on lease accounting. The publication will conclude a project that has taken the accounting board more than a decade to complete and stirred up a great deal of controversy among businesses that are likely to be affected.

The FASB will publish its long-awaited lease accounting standard on February 25, 2016, said the technical director of the accounting board’s research staff.

“We wanted to provide a status update on our project on leases for those stakeholders who have been anxiously awaiting the issuance of that final standard,” said Susan Cosper in a brief statement at the tail end of the accounting board’s February 17 weekly meeting. “We wanted to let everyone know that ASU No. 2016-02 will be issued on Thursday, February 25.” The main portion of the board meeting dealt with the FASB’s project for defining a business in U.S. GAAP.

If the FASB meets the lease standard’s publication schedule, the upcoming standard will become the second major release the board has issued in 2016. On January 5, it published Accounting Standards Update (ASU) No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which was also the conclusion of a major initiative that took the board many years to complete.

The lease accounting project has been the subject of intense public scrutiny and much opposition from businesses that expect to add many billions of dollars in assets and liabilities to their balance sheets once the lease accounting standard becomes effective. LeaseAccelerator, an equipment lease software developer in Great Falls, Virginia, released a study on January 26 that said retail and restaurant chains, banks, and air carriers will all feel the effects.

In a January 29 letter to the FASB, the U.S. Chamber of Commerce and other business groups said private companies should be given an exemption from the standard’s requirements because of the costs they would bear and the operational difficulties they would face implementing the changes.

The existing guidance in U.S. GAAP says companies only have to record lease obligations on their balance sheets when the arrangements are akin to financing transactions, such as rent-to-own contracts for buildings or vehicles. Few contracts get recorded because of the standards allow companies to structure their lease contracts to look like simple rentals. If an obligation is not recorded on a balance sheet, it makes a business look like less leveraged than it really is.

The FASB’s lease accounting standard is slated for release about six weeks after the IASB issued IFRS 16, Leases. The FASB and IASB standards are projected to add an estimated $2.8 trillion to company balance sheets worldwide.

The FASB completed its technical discussion of lease accounting in November, when it decided that the standard will be effective in 2019. Private companies will have until 2020 to comply with it.

The FASB also has made several concessions since the issuance of Proposed ASU No. 2013-270, Leases (Topic 842), to make the upcoming accounting change more palatable.

But the letter from the Chamber and the other business trade groups said more changes are needed.

The FASB’s effort to overhaul lease accounting has been many years in the making.

In 2005, the SEC advised the FASB to reexamine the accounting for lease contracts in Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 on Arrangements With Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers.

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