Chamber Study Compounds Lease Accounting’s Reform Troubles

 Lease accounting reform efforts by the U.S. Financial Accounting Standards Board and the International Accounting Standards Board have had a history of trouble on their path to a final, converged standard. The U.S. Chamber of Commerce, a business trade group, along with a series of real-estate-related organizations, added a whole new element of contention Feb. 16 with a study they commissioned that alleged serious economic setbacks if the revisions, as currently proposed, are ever implemented.

The boards--since the Aug. 17, 2010 proposal of the lease provisions--have struggled with whether to convert almost entirely to capital leases as opposed to right-of-use leases. The standards-setters have also grappled with just how to go about implementing such a change, and to what degree changes in the lessor side need to go forward. The boards had earlier indicated that they will need to issue a revised leasing proposal, with the hopes the proposal could be exposed for public comment sometime in the first half 2012.
The Chamber-sponsored study could add further impetus to move ahead with a revised proposal or retard the leasing reform effort further. The Chamber in earlier comments had said the FASB-IASB proposals distorted the true economics of leasing.

Financial institutions chimed in with similar criticisms, and said its exorbitant implementation costs would drive people away from leasing as a business tool. The study sought to add research heft to those criticisms. It predicted that 190,000 U.S. jobs would be destroyed, $1.5 trillion in liabilities would be needlessly added to business balance sheets, and that $27.5 billion in annual losses would be added to gross domestic product.

The boards in the past have tried to downplay criticism of the alleged economic effects of their standards setting. They argue that their job is to improve the transparency and accountability of financial reporting, not to help manage the economy.

But former FASB member Robert Swieringa said that, for at least this time, he expects the boards to pay attention. Partially because the current lease accounting approach dates to 1976, Swieringa said he expects FASB “will continue to give due consideration to the likely economic and other effects of a change in lease accounting.” However, “it is also important to recognize that there are significant perceived costs and economic effects from not changing long-standing accounting guidance that may undermine the quality and usefulness of financial reporting,” he said.

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--Steven Marcy