Proposed New Lease Accounting: A Joint Project between the FASB and the IASB


By Shawn Edwards


To establish consistent principles for lessees and lessors to use when reporting information to financial statement users about the cash flows from leasing transactions. 


The Financial Accounting Standards Board (FASB) issued a Discussion Paper on Preliminary Views on March 19, 2009 with a comment period that ended July 19, 2009. The FASB and the International Accounting Standards Board (IASB) have been deliberating monthly since the FASB issued its discussion paper, and have published the minutes from their most recent meeting on April 22, 2010. An Exposure Draft was issued August 17, 2010 with comments due December 15, 2010. Roundtable discussions will occur during the fourth quarter of 2010, and a Final Accounting Standards Update is expected during the second quarter of 2011. Estimates are that the new standard could be applicable as early as January 1, 2012.

The guidance shall be applied by entities to all right-of-use asset leases and subleases, except:
1. Leases of intangible assets.
2. Leases to explore for or use natural resources (e.g., oil or natural gas).
3. Leases of biological assets.

The guidance shall not apply to contracts that represent a purchase or sale of an asset, such as:
1. A contract that results in the transfer of control of an asset and all but a trivial amount of the risks and benefits associated with the asset.
2. A lease after the lessee has exercised a purchase option.

Leases that are for fewer than 12 months (even those with renewal options) can be classified as short-term, and are subject to simplified rules.

Read the entire Proposed New Lease Accounting: A Joint Project between the FASB and the IASB.

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