FASB Updates: The Latest News on Lease Accounting Standards

Posted on November 19th, 2012 · Posted in CRE News, Industry News, Lease Administration, Lease Auditing

As we discussed in the June issue of our newsletter, the FASB and IASB have reached a consensus on new rules for lease accounting, outlining two models that will be used to represent lease expenses on the balance sheet: the right-of-use approach and the straight-line method (CLICK HERE to read our coverage of these models).

So what’s been happening with this issue since then? We’ve got the updates outlined below:

A second converged exposure draft (ED) is coming. Leslie Seidman, Chair of the FASB, recently announced that the second ED for the new lease accounting standards will be released in the first quarter of 2013. This ED is expected to address the proposed standards in detail including definition of a lease, scope of the standards, confirmation of the proposed models, leasee and leasor accounting considerations, leveraged leases, subleases, lease terms, contract modifications, variable lease payments, subsequent measurement issues, disclosure issues, lease options, short-term leases, and inception vs. commencement, along with other pertinent issues. The ED will be open for public commentary after its release; more information is available from the FASB by clicking HERE.

IASB Chief warns of threat from lobbyists. Although the FASB and IASB have made great strides recently to come to consensus on changes in lease accounting standards, Hans Hoogervorst, Chair of the IASB, fears that lobbying efforts by the leasing industry to scuttle or dilute the revised standards. Hoogervorst made these comments during a speech at the London School of Economics, where he emphasized the need for transparency as the rationale for the new lease accounting rules.

Awareness of impending changes is low among businesses. Over half of 2,800 global businesses surveyed were unaware of the impending changes in lease accounting standards, according to a report issued by Grant Thorton in late 2011. While almost a year has passed since then, it is still concerning that so many key stakeholders in this process are not staying current with these changes, which represent a significant shift in how leases are accounted for on the balance sheet (and not only for real estate assets, either!). MBG Consulting will continue to do our part to keep you informed on this topic, so be sure to keep checking our newsletter and blog for any updates. We will be sure to provide full coverage of the latest exposure draft when it is released in 1Q13.