It seems that for years now everybody has been bracing and preparing for the inevitable regarding lease reform. However, changes to how companies account for leases which were thought to be a foregone conclusion, may not materialize.
The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) agreed that leases with terms greater than one year would be capitalized and recorded on companies’ balance sheets. This was done in an attempt for transparency into companies’ lease activities. Currently it is estimated that over $1 trillion in lease obligations is disclosed in financial statements from across the globe. The proposed changes to lease accounting would require the majority of those leases to be recorded.
Corporate lobbying, both in the United States and internationally, is attempting to stop the changes before they even become effective. Companies are fearful of increased borrowing costs due to inflated balance sheets.
The United States Chamber of Commerce as well as Leaseurope (the European Federation of Leasing Company Associations) have voiced concerns. The U.S. Chamber of Commerce estimated that changes to the lease standard could cost 190,000 jobs.
Leaseurope noted the following in a letter to the IASB “After six years of re-deliberations, we consider that the proposals due to be re-exposed are not an improvement over the existing leases standard and do not warrant the cost and burden of change.”
It appears likely that this may delay any finalization of a lease standard, but also raises questions as to whether we will ever see a global set of accounting standards.
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