Joint Roundtable Meetings Set on Lease Accounting Proposal
By Jason Bramwell
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) will host five joint public roundtable meetings in September and October on their revised proposals on lease accounting that were published in May.
The roundtable meetings are an important part of both boards' due process on the revised exposure drafts, according to the FASB. The meetings will provide an opportunity for those who have submitted a comment letter or who still intend to submit a comment letter to discuss the proposals with the boards in further detail.
Interested individuals and organizations have until September 13 to submit a comment letter on the proposed changes to the lease accounting standards.
To ensure they receive input covering a variety of perspectives, the FASB and the IASB are seeking meeting participation from financial statement preparers, auditors, investors, and others.
Registration information for interested participants and observers is available on the leases project pages on the FASB and IASB websites. An audio recording of the roundtable meetings will be made available shortly after each meeting on both organizations' websites.
The new proposals aim to improve the quality and comparability of financial reporting by providing greater transparency about leverage, the assets an organization uses in its operations, and the risks to which it is exposed from entering into leasing transactions, according to the FASB.
The existing standards have been criticized for failing to meet the needs of users of financial statements because they do not always provide a faithful representation of leasing transactions.
For capital leases, lessees recognize lease assets and liabilities on the balance sheet. For operating leases, lease assets and liabilities are not recognized by lessees on the balance sheet, according to the FASB.
Under the new proposals, lessees would have to recognize assets and liabilities for the rights and obligations for leases of more than twelve months.
The FASB and the IASB are also proposing a dual approach to the recognition, measurement, and presentation of expenses and cash flows arising from a lease. Under the new proposals, lessees would report a straight-line lease expense in their income statement for most real estate leases. For most other leases, such as equipment or vehicles, lessees would report amortization of the asset separately from interest on the lease liability, according to the FASB.
Disclosures are also being proposed that should enable investors and other users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases, as well as recommending changes to how equipment and vehicle lessors would account for leases that are off-balance sheet. Those changes would provide greater transparency about such lessors' exposure to credit risk and asset risk.
Opponents of the new lease accounting proposals believe they will not result in a significant improvement in the quality of financial reporting and will be more complex than the current standards.