At long last, the Financial Accounting Standards Board and the International Accounting Standards Board have published their second draft of a proposed standard to overhaul lease accounting in a way that would bring all but the shortest-term leases on to corporate balance sheets. Three of FASB’s seven members are not on board with the proposal, however, calling it overly complex, overly burdensome on preparers, and missing the mark in providing information that will be useful to investors. Two IASB members also dissented, and all of their alternative views are included with the proposal.
FASB and the IASB built the proposed new standard around a core principles that assets and liabilities arising from a lease should be recognized on the balance sheet, a concept unchanged from the boards’ original proposal in September 2010. The new standard would require any lease of more than 12 months to be reflected in balance sheets with a liability to reflect the obligation to make lease payments and an asset representing the company’s right to use the leased asset for the term of the lease. “Even though this is the second draft, we have retained the same basic principle,” says FASB Chairman Leslie Seidman. “Leases convey valuable rights and obligations that belong on the balance sheet.”
