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Leases – Will We Ever See A Standard?

By Mark Rodruck

I know, here we go again talking about putting leases on the balance sheet.  The Financial Accounting Standards Board (FASB) has been talking about changes to the current standard since 2006.

We keep hearing “when, not if” in regards to changes to lease accounting.  The delay seems to stem from differences in opinion between FASB and the International Accounting Standards Board (IASB).  They cannot agree on a path forward.

Both boards agree leases need to be on the balance sheet, but they disagree with the method to accomplish it.  FASB is set on a dual-recognition approach with different methods to amortize the lease.  They feel that capital leases should use an interest and amortization method while operating leases should be expensed on a straight line method.  The IASB would prefer to account for all leases as a purchase of a right-of-use asset.  What does this mean?  I guess wait and see.

A release date for this standard remains uncertain, but management and preparers need to pay close attention as leases affect a large percentage of organizations.