I have heard it said many times that accounting results should not drive the basic economic decisions related to business. And I generally agree with that point of view. But it is difficult to ignore completely the accounting results and business analytical metrics that result from changes in accounting treatment and certainly the changes in lease accounting currently being proposed by the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) will drive significantly different accounting results and metrics as compared to current accounting requirements. Therefore, let’s examine some of the business considerations that financial decision makers should take into account as they evaluate the impact of the proposed standard. As in the past, our focus will be on lessees since the proposed changes will have the greatest impact on their financial results. The issues will be considered separately for property and equipment leases but many of these issues will be relevant for both types of leases. Further, the impact will be much greater for those companies whose leases are currently categorized as operating leases, so we will limit our discussion to the effect of the change from current operating lease accounting versus the proposed standard. We will also consider how the proposed accounting standard might impact certain selected industries.
Before thinking that we are being premature in dealing with these issues given that the proposed standard might not be effective until 2017, remember that a five year lease that is being finalized currently might well have to be transitioned into the proposed new accounting model at the effective date. Financial decision makers should be prepared to understand, at least in general, the terms of the future accounting ramifications of decisions that are being made currently. To read more, please download the whitepaper at Business-Considerations-for-the-FASB-IASB-Lease-Accounting-Changes