FASB’s Investor Advisory Committee opposes leases proposal

The converged proposal on financial reporting for leases continues to face resistance with the deadline for comment letters little more than one week away.
FASB’s Investor Advisory Committee (IAC) last week declined to support the proposal, stating that the proposal is not an improvement to current accounting. And the Equipment Leasing and Finance Association (ELFA), a U.S. trade group,
continued its campaign against the proposal with a news release drawing attention to the advisory committee’s dissent.
“This raises another key question,” ELFA President and CEO William Sutton said Tuesday in a news release seizing upon the IAC’s conclusion. “Is the cost-benefit analysis in the exposure draft sound if key users and other stakeholders maintain that current GAAP gives them better information than the proposed exposure draft and that the proposed rules are too complex?”
Comments are due Sept. 13 on the proposal at the websites of FASB and the International Accounting Standards Board (IASB). The proposal calls for lessees to report a straight-line lease expense in their income statement for most real estate leases. In most equipment and vehicle leases, lessees would recognize leases as a nonfinancial asset measured at cost, less amortization. This would result in a total lease expense that generally would decrease over the lease term.
Former FASB Chairman Leslie Seidman said when the proposal was released that it reflects investors’ views that leases are liabilities that belong on the balance sheet.
During the IAC’s meeting with FASB on Aug. 27, IAC member David Trainer, CEO of investor research company New Constructs, said it’s helpful to get more transparency on the liabilities related to leases. But he said the complexities of leasing activity make it almost impossible to create a one-size-fits-all solution that can be put on the balance sheet.
The IAC recommended that the boards increase disclosure requirements about leases rather than placing them on the balance sheet.
“Having to unwind an accounting construct put on the balance sheet and then having to do my own analysis is not very desirable,” Trainer said. “I’d rather just have the data there, and let me do with it what I think I ought to do with it.”
In the spring, Moody’s Investors Service Managing Director Mark LaMonte expressed a similar view, saying the proposal would force investors and analysts to deconstruct the information placed on the balance sheet before performing their own calculations to determine lease liabilities.
The boards hope to have a converged standard in place by 2014, with implementation expected to start not earlier than fiscal years beginning on or after Jan. 1, 2017. KPMG Global Leases Topic Team member Kimber Bascom, CPA, predicted last week that the proposal would move forward.
“Yes, they will proceed,” Bascom said during a KPMG webcast, “unless there is very coordinated resistance.”