FASB Releases New Exposure Draft on Lease Accounting
May 16, 2013
After 18 months of deliberations since previous proposals to revise lease accounting, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have released revised exposure drafts. The revised exposure drafts for both organizations are nearly identical. The differences between the two drafts primarily relate to existing differences between U.S. generally accepted accounting principles and International Financial Reporting Standards and decisions the FASB has made related to nonpublic entities.
The leases project began in 2006, as a convergence project between the FASB and the IASB to address concerns that the significant use of operating leases hides the true financing obligations of public companies. The first set of public comments was in response to a Preliminary Views document issued in early 2009. The original exposure draft, issued in August 2010, generated close to 800 public comments. Numerous FASB constituents have also participated in a series of public roundtables to submit testimony concerning accounting and reporting changes viewed as controversial or burdensome by many. Both boards have conducted educational outreach over the years.
Proposed Accounting Standards Update (ASU), "Leases (Topic 842), a Revision of the Proposed FASB ASU Leases (topic 840)," creates a new approach to lease accounting that would require assets and liabilities arising from leases to be recognized in the statement of financial position. The proposed requirements would supersede the requirements in Topic 840, Leases, in the FASB Accounting Standards Codification.
The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee would depend primarily on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset. For practical purposes, this assessment would often depend on the nature of the underlying asset. For most leases of assets, other than real estate, a lessee would do the following:
- Recognize a right of use asset and a lease liability, initially recognized at the present value of lease payments
- Recognize and report the interest expense on the lease liability separately from the amortization of the right of use asset
For most leases of real property, such as land, buildings, buildings and land, or part of a building, a lessee would be required to:
- Recognize a right of use asset and a lease liability at the present value of lease payments
- Recognize a single lease cost - that combines the interest on the lease liability with the amortization of the right of use asset - on a straight line basis
The proposed ASU also addresses additional disclosures that explain the amount, timing, and cash flows related to lease liabilities. The proposal exceeds 300 pages and is open for public comment through September 13. NACUBO will be submitting comments and encourages independent institutions to share comments or concerns with NACUBO staff for inclusion in the industry comment letter.
The exposure draft and information about educational programs are available on FASB's Website.
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