In their July 2011 meetings, The FASB and the IASB (the Boards) decided to formally re-expose the proposed lease accounting standard for public comment. The timetable for final issuance will be pushed out even further into the future. The Boards’ goal is to finish final deliberations in the third quarter of 2011 with the issuance of a revised exposure draft shortly thereafter. It is likely that the final standard would not be issued until the second half of 2012.
The Boards continue to reaffirm previous tentative decisions related to accounting for short-term leases, variable lease payments and subleases. The Boards also expanded the scope of disclosure requirements in the area of maturity analysis and expense component disclosures.
With respect to lessor accounting requirements, the Boards developed an approach for lessor accounting that is different from the approaches put forth in the original exposure draft. This new approach, called the “receivable and residual approach”, would require balance sheet presentation of the lessor’s right to receive lease payments and would allocate the carrying value of the leased asset between the portion related to the right of use asset and the portion retained by the lessor.
Although the time table for final issuance of a new accounting standard has been extended even further, the basic principles related to proposed lessee accounting continue to be reaffirmed, namely, a balance sheet approach with the need for significant upfront calculations, reassessment of original conclusions under certain circumstances and an acceleration of expense recognition as compared to current GAAP accounting. The delay in issuance is mainly due to the Boards’ position that the new standard deal with both lessee and lessor accounting and the reconsideration of lessor accounting as compared to the proposals in the original Exposure Draft. The model now proposed for lessor accounting will be significantly more complex than the current GAAP requirements.
Lessees should continue to follow the approach that we have outlined in the past by making certain that critical lease information has been collected and organized in a manner that will facilitate the analysis required not only to meet the new accounting standards but also to satisfy business needs of the enterprise. For even a relatively small portfolio of leases, an easy to use technology solution is essential.