FASB and IASB Leases Standard Likely Delayed to 2015

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May 7, 2014 – Back to BlogShare

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been unable to come to agreement on the revisions to the accounting for lease contracts, most likely delaying the finalization of the overhaul of this standard to 2015.

The revised timeline is not surprising to financial professionals who have followed this contentious proposal, which is in response to complaints that companies do not need to report substantial liabilities for the costs of rented real estate, equipment and vehicles on their balance sheets.

The proposed changes, if finalized, would require companies to recognize nearly all of these lease expenses as liabilities, a major overhaul for U.S. GAAP and IFRS.

While both Boards agree on the need for this reform, their differences lie in how the expenses should be recorded on income statements.

The majority of IASB members believe that most lease expenses should be treated as financing transactions, with interest and amortization calculated with the rental expense, making the cost to rent a piece of equipment look more expensive at the beginning of a lease. Many companies are against this saying that it will make them look more leveraged than they are and diminish their market value and creditworthiness.

A majority of the FASB members also believe some leases should be treated like financing transactions, while others should be treated like simple rental agreements with even payments over the life of the contract.

The Boards have agreed to continue their joint discussions of the May 2013 Exposure Draft at a future Board meeting.

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