Deliberations on Lease Accounting

The FASB and IASB have decided that there may be a reason to create two categories of leases. The boards are now considering a structure where "finance leases" would be treated like an installment purchase, putting an asset on the balance sheet as well as a liability to be paid over time. "Other-than-finance" leases would also appear on the balance sheet, but would flow through the income statement like today's operating leases because the financing element would not be considered significant.

Additionally, multiple comments on the Lease Exposure Draft have caused the joint boards to take pause and revisit how companies should account for renewal options and other factors. Specifically, the Boards have:

• Decided to raise the threshhold for deciding when lease renewal options should be included in the liability
• Tentatively concluded that lessees and lessors should follow the same basic guidelines for deciding if an obligation tied to some kind of variability would be included in the liability or the receivable

More details on this discussion may be found in the February 16, 2011 Summary of Board Decisions on the FASB website.

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