Leases: Lease Accounting Convergence Brings a New View
The lease accounting rules as we currently know them are changing as a result of ongoing accounting convergence efforts between the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) (collectively, the “Boards”). In August 2010, the Boards issued an exposure draft (ED) proposing to establish a new accounting model for both lessees and lessors and to fundamentally change how leases are recorded in a company’s financial statements.
On the basis of feedback received from comment letters, roundtables, and outreach sessions, the Boards have made significant changes to the proposals in the ED and, therefore, have decided to re-expose the proposed lease accounting guidance for comment. While the exact timing of the re-exposure expected in the second half of 2012 and the issuance of a final standard later in 2013 is open, based on deliberations to date there are some fundamental aspects we know now with some degree of certainty.
The proposed lease model is expected to impact companies across various industries and in a variety of ways, including:
- Many companies will likely face technical accounting challenges in applying the new accounting standard, as well as a likely need to address a number of process and technology issues.
- For lessees, the new approach would eliminate the operating lease accounting model and replace it with a “right-of-use” model, in which a lessee would recognize an asset representing its right to use a leased item during the lease term, as well as a liability for the lessee’s obligation to pay rentals.
- For lessors, after further deliberations, the Boards tentatively decided that a single lessor accounting model, the “receivable and residual” method, should apply to all leases, with exceptions for short-term leases and leases of investment property. The proposed single model employs a receivable and residual approach that is similar to the derecognition model proposed in the ED and does away with the performance obligation model proposed in the ED
In Deloitte’s publication, Leases: Lease Accounting Convergence Brings a New View, we highlight some of the key implementation challenges that may lie ahead, and show how Deloitte can help companies evaluate – and ultimately implement – this new lease accounting guidance.
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