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The FASB to Re-Expose a Revised Exposure Draft on Lease Accounting

 -Looks like sometime in the 1st half of 2013 (plus another 120 days of seasoning with comments) before this turkey is ready for the oven 

Very recently, the FASB met to further re-deliberate, and (hopefully) reach a consensus on the remaining outstanding issues holding up issuance of the long-anticipated revised leasing exposure draft which, during Q1 2012, had been promised before the end of this year.  Notwithstanding continued criticism by investor groups as to whether the proposed accounting standard as presently formulated will in fact actually result in disclosure of improved and useful information, the Board appeared poised to get the ED out.  Apparently, there continue to remain some significant issues holding up issuance of the final ED to the point that the FASB staff has now announced an expected ETA of Q1 2013 for the Draft, with a comment and (further) re-deliberation period which suggests a Q4 2013 issuance timeframe (and probably an effective date not earlier than 2016).

Highlighted issues still being tweaked include, among others: 

  • Sale leaseback finalized rules
  • Accounting for leases (particularly those to be accounted for as straight-line) post impairment adjustment
  • Whether to allow a method other than straight-line to be used for those leases which would not require a front-loaded time value of money amortization expense pattern (such as based on expected use patterns as permitted by current GAAP)
  • What economic life should be used for a subleased asset (i.e., the life of the sublease, or the life of the underlying asset)?
  • Leases between related parties (and the elimination of the current GAAP requirement to evaluate the accounting as if between unrelated parties)

Folks, as you can probably surmise, we are going to eventually end up with a standard which represents (as do most things in life) a compromise which will not be conceptually faithful to any truly “principles- based” idea of accounting, but will require a lot of work to implement, create a profit opportunity for lenders (as I stated a couple years ago in this space) and provide dubious value to the marketplace of financial statement users.  Oh well! Chin up; stay tuned.
 

Aaron Kaiser is an Audit Partner and member of the Professional Practice Group and a leader in the Real Estate accounting services group.

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