Lease Expensing Model Likely to Be Different

The final version of the anticipated lease accounting overhaul has not been released yet, but it appears that the U.S. Financial Accounting Standards Board (FASB) is leaning toward a dual model for lease expenses, and the International Accounting Standards Board (IASB) is now leaning toward a single model. The IASB said that “In practice, the difference in the IASB and FASB positions is expected to result in little difference.” But some analysts believe there could be vast operational differences when applying the two differing standards. 

The FASB’s model would handle some leases like financings and other leases as straight line expenses; whereas the IASB’s model would handle all leases like financings. The IASB model would require all companies to amortize an asset over time.

The major goal of the joint lease accounting overhaul was to address investor complaints that off-balance sheet leases understate a company’s long-term liabilities. Additional calculations are often needed to adjust for these expenses.

A consistent model would seem to be in the best interest of the companies and investors. But, like I said in my recent blog about IFRS initiatives, it seems unlikely that global accounting standards will be adopted in our near future.