I ran across an interesting blog today by Jim Duport of Lucernex Technologies. His posting “The proposed FASB changes and the impact on the lease vs. buy decision” covers a lot of the anxiety 0ut there right now on the proposed new standard for lease accounting. Jim isn’t a CPA but has a lot of experience in the leasing industry; not sure all of his debits and credits are right (and I admit I haven’t yet read the proposed standard) but I think he’s got a good grasp of the issues.
My restaurant group clients are especially nervous about this proposed statement. Generally, they sign a 10 year lease that has anywhere from two to four optional renewal periods of five years. Imagine putting all of that on your balance sheet right from the start and then maybe have to do a present value calculation with a judgmental internal rate of return. Jim Duport suggests that many businesses that enter into long-term leases may become building owners. I think he’s right. And using Jim’s term, I think there will be unintended consequences.
I understand the conceptual guts of this statement, but this rush to convergence with international standards is going to have a big impact. Just like people say “the tax tail shouldn’t wag the investment dog” I don’t think the accounting tail should wag the business decision dog.