The second exposure draft on the proposed lease accounting changes has been published today by the joint accounting standards boards and the global leasing industry has until mid-September to provide feedback.
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) released an initial exposure draft in 2010 which met with considerable criticism from the industry.
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The original proposals, which set out a model for capitalising all lease and rental contracts, were criticised in around 800 comment letters for being unnecessarily complex and failing to be conceptually consistent.
The second exposure was originally scheduled for publication in early, and then late, 2012 but faced delays as the two boards and stakeholder groups representing the leasing industry, including Leaseurope and the US Equipment Finance and Leasing Association, tried to thrash out an agreement.
Stakeholder groups expressed concern the initial proposed approach did not reflect the wide variety of lease transactions used and the second proposal attempts to address this concern through a double-barrelled approach which incorporates both straight-line accounting, primarily for real estate, and a right-of-use approach similar to that proposed in the initial exposure draft.
The boards are also proposing disclosures to enable investors and other users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases and changes to how equipment and vehicle lessors would account for off-balance sheet leases.
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By GlobalDataIn a joint statement announcing the publication, the IASB and FASB said: "The proposal aims to improve the quality and comparability of financial reporting by providing greater transparency about leverage, the assets an organisation uses in its operations and the risks to which it is exposed from entering into leasing transactions."
The two boards will publish separate exposure drafts which are "nearly identical" but contain small differences relating to existing differences between US GAAP and IFRS and decisions the FASB made related to non-public entities.
Hans Hoogervorst, chairman of the IASB, said: "The development of an improved standard for leasing is vital. At present, investors must take an educated guess to determine the hidden leverage from leasing by using basic disclosures in financial statements and applying arbitrary multiples.
"The proposal outlined in this revised Exposure Draft will go a great distance towards improving the quality and comparability of financial reporting in this area."
Referring to disagreements among the joint board members on how to addrees industry concerns in the revised proposal, Stephen Sklaroff, director general of the UK’s Finance & Leasing Association, said:"It is disappointing that once again the IASB has published a set of proposals for important new accounting rules which do not command the full support of its own members."
"While we are pleased that the Board’s original highly complex proposals have been simplified, we remain concerned that the revised draft rules will still be difficult for business users of leasing to implement. We will be urging the Board to make further changes to reflect the needs of the hundreds of thousands of businesses of all sizes which rely on leasing to fund their equipment investment."
The FASB and the IASB will host a live webcast to discuss the proposal on Monday 20 May from 3:30 to 4:30 p.m. GMT.
Stakeholders have until 13 September 2013 to review the draft and provide feedback
Further information, including the revised exposure drafts, is available on the IASB website and the FASB website.
