FASB Project on Accounting for Leases
The rules on lease accounting have remained substantially unchanged since the 1970’s. For the most part, lease payments are expensed as paid over the course of the lease. Leases where the threshold for ownership transfer is met as defined by a narrow series of accounting parameters (capital leases) are accounted for as though the ownership had in fact changed hands with the net present value of lease payments being treated as a debt to be paid.
The Financial Accounting Standards Board (FASB) released an initial exposure draft on lease accounting rules in 2011, which, if implemented, would result in major changes to the manner in which leases are recorded by both lessors and lessees. Based on the feedback received from industry professionals, the FASB decided to revise this exposure draft and FASB expects to issue a revised exposure draft by mid 2012.
Based on the current exposure draft, all organizations would require the recording of “right of use” assets (or liability) for all leases based upon the net present value of the contractual and probable lease payments discounted based on the incremental borrowing rate of the lessee.
If you have any questions or would like more information, please contact:
Eric Williams, CPA