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Lease Standards Slated for Publication in Second Half of 2015

June 10, 2014

The FASB and IASB plan to resume discussing their project on lease accounting in the fall, with the goal of publishing the final standards in 2015. Before the accounting boards finish their work, they have to resolve some important issues, including their disagreement on some of the proposed changes to accounting in U.S. GAAP and IFRS.

The FASB and IASB plan to resume discussing their project on lease accounting in the fall, with the goal of publishing the final standards in 2015.

The boards’ exact schedule remains somewhat unclear, and FASB member Thomas Linsmeier categorized expectations for a publication date in the first half of the year as “ambitious.” The final standards are expected to be based upon the proposals the boards published in 2013 as the FASB’s Proposed Accounting Standards Update (ASU) No. 2013-270, Leases (Topic 842), and the IASB’s Exposure Draft (ED) No. 2013-6, Leases.

“I’m not sure when we’re going to finish redeliberations,” Linsmeier said during a June 5, 2014, meeting between the FASB and Financial Executives International’s (FEI) Committee on Corporate Reporting in Stamford, Connecticut. “I think the plan is somewhere between September and October on initial topics. But we are not converged yet on some very, very major issues. I don’t know the extent that we will be able to bring it back and have those conversations. If we do that, it could extend the deliberations for a period of time.”

Linsmeier said the late-stage reviews the boards conduct for convergence projects have also dragged out the process more than expected.

The differences between the two boards include the issue of how to account for lease expenses.

Most IASB members favor a single approach to lessee accounting and treating almost all leases as financing transactions. The majority of the FASB favors an approach that would treat leased items for which most of the value is used up during the contract as a financing arrangement, or a “Type A” lease. Assets that still have most of their value left at the end of the contract would be treated more like rentals and classified as “Type B” leases.

Linsmeier added that the FASB remained committed to continue working toward a converged standard, but the U.S. board won’t overlook the interests of U.S. companies or investors in the effort to converge. He referred to a comment letter FEI members submitted three months ago that said the FASB and IASB were writing a lease accounting standard that won’t “meet a reasonably performed cost-benefit analysis.”

“We’re also well aware that that paragraph in your March 14, 2014, letter that says that in the end, improvement is more important than convergence was a loud message,” Linsmeier said.

The boards also disagree on the treatment for what are called small-ticket, high volume transactions, with the IASB favoring a small-ticket exemption. FASB members are concerned that allowing such an exemption could conflict with SEC requirements for disclosures of “material” amounts.

A lease for a single photocopier or iPad is too small to be recognized on a financial statement, but a contract that covers the thousands of copiers or tablet computers throughout a company may be large enough to be reported.

“Our board’s concern, generally speaking, about small ticket is that the need for small ticket beyond a materiality threshold is that you would not be booking leases that are material on the financial statements, either in the financial statements themselves or in the footnotes,” Linsmeier said. “If that’s the outcome of what we’re doing with small ticket, many of us think that would be a violation of federal securities laws.”

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