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Planned Lease Standard Will Not Include Measurement Differences for Private Companies

Private companies will apply the same accounting as public companies when they adopt the FASB’s forthcoming standard on leases. The accounting board did not see any reason to change the recognition or measurement of leases or modify the disclosure or transition requirements for private companies.

Private companies will follow the same accounting as public companies when they apply the forthcoming standard on leases, a unanimous FASB decided on April 7, 2015.

The FASB often offers breaks to private companies when it drafts accounting standards, allowing them more time to adopt a requirement or letting them disclose less information in their financial statement footnotes. The modifications are meant to help private companies, which tend to have fewer resources than public companies, more easily comply with new accounting standards.

The accounting board did not see any reason to change the recognition or measurement of leases or modify the disclosure or transition requirements for private companies on this project, however.

“I didn’t see any basis for a difference,”¬†FASB Vice Chairman James Kroeker said.

The board did not make any decision about whether to allow private companies more time to adopt the forthcoming standard. The board is expected to decide the effective dates for public and private companies at the same time.

The lease accounting standard is expected to usher in a major change for most companies because it will require them to account for their leases of storefronts, equipment, photocopiers, and vehicles as assets they have the right to use and as liabilities for which they must make payments. It’s generally expected that the change will increase the reported liabilities for many companies. The change is a sharp contrast to existing U.S. GAAP, which allows most leases to remain off balance sheets. Critics have complained for years that the failure to put lease liabilities on balance sheets makes companies look less indebted than they really are.

The work on the standard included the publication in 2013 of the FASB’s Proposed Accounting Standards Update (ASU) No. 2013-270, Leases (Topic 842) , and the IASB’s Exposure Draft (ED) No. 2013-5, Leases . The proposals were largely converged, but the FASB and IASB have since gone in separate directions and are expected to publish different final standards. The boards’ proposals continue to have the same central premise of forcing lease liabilities on company balance sheets.

The 2013 proposal permitted private companies to make an accounting policy election to use a risk-free discount rate to measure their lease liabilities. The FASB confirmed the exemption in August 2014 and reiterated on April 7 that private companies could still employ the break.

The FASB says it will publish a final accounting standard by the end of 2015.

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