On May 17, 2013, the FASB and the IASB published revised Exposure Drafts outlining proposed changes to the accounting for leases. The leases project is a converged effort between the FASB and the IASB—the revised Exposure Drafts for both organizations are nearly identical.
This project’s intent is to address widespread concern that many lease obligations are not recorded on the balance sheet and that the current accounting for leases does not represent the economics of all lease transactions.
The Boards have developed an approach to lease accounting that would require a lessee to recognize assets and liabilities for the rights and obligations created by leases. A lessee would recognize assets and liabilities for leases of more than 12 months.
The revised Exposure Drafts propose a dual approach to the recognition, measurement, and presentation of expenses and cash flows arising from a lease. For most real estate leases, a lessee would report a straight-line lease expense in its income statement. For most other leases, such as equipment or vehicles, a lessee would report amortization of the right-of-use asset separately from interest on the lease liability.
The leasing industry is a significant business globally and it may provide political pressures that affect the final standard. One may expect the debate on this standard to continue to be heated as entities examine the provisions and understand its application. The comment deadline on the revised Exposure Drafts is September 13, 2013.