In another big blow to convergence, the International Accounting Standards Board has decided to return again to the notion of having a single model for all leases to bring them on the balance sheet and reflect their costs in the income statement.

The IASB has updated its current project documents on its effort to revise lease accounting to indicate the board has decided to abandon the dual-model approach jointly proposed with the FASB in 2013. Under that approach, accounting rules would have reflected differences between real estate and equipment leases to reflect views held by some that they are economically different transactions. Ultimately, IASB determined that view is not far-reaching enough to codify it into a new accounting standard.

“On the basis of feedback received, the IASB concluded that a model that separately presents interest and amortization for all leases recognized on the balance sheet would provide information that is useful to the broadest range of investors and analysts,” IASB wrote in its project update. “This is because most investors and analysts consulted think that leases create assets and debt-like liabilities for a lessee.”

IASB says the single-model approach is easy to understand because all leases will lead to the recognition of fixed assets and financial liabilities in financial statements. “It also avoids any structuring that might arise from having different accounting for different leases, which was a concern expressed by some investors and analysts,” IASB wrote.

FASB spokesman Robert Stewart says FASB is expected to stay the course on the dual model. “There are no immediate plans to reconsider the two-model leasing proposal,” he says.

FASB and IASB have worked jointly on an overhaul to lease accounting and gone back and forth on whether to treat all leases like the financed purchase of an asset or to enable some leases to be treated more like rental agreements. That distinction exists in current accounting rules with bright lines that create operating and capital leases. Operating leases are treated like rental agreements with expenses reflected each period as they are incurred while capital leases lead to an asset on the balance sheet and a liability affecting earnings.

Both boards proposed a single model at the outset of their quest for better accounting but met heavy resistance from those who believed the front-loading of interest expense, particularly on shorter-term rental-like lease agreements, didn’t fairly reflect the economics of all leases. The boards developed a two-model approach for “Type A” and “Type B” leases, focusing on the “consumption” of a leased asset over its life, and created a practicability exception for leases that lasted less than one year. Feedback has been critical of that approach as well, some suggesting it’s overly complicated and could be subject to the same gaming around today’s capital and operating leases to achieve the most desired accounting result.

FASB has continued to deliberate revisions to its dual model. IASB ultimately decided to let the conceptual ideals prevail: “The IASB is of the view that all leases result in a lessee obtaining the right to use an asset and the provision of financing, regardless of the nature or remaining life of the underlying asset,” IASB wrote. “Accordingly, the IASB concluded that all leases should be accounted for in the same way.”

The IASB says it expects to issue its new standard on leasing in 2015. It plans to continue discussing lease disclosures and transition requirements with FASB, hoping to explore opportunities to reduce the cost and complexity of the requirements, the board says in its project update. “The boards will continue to discuss the project jointly, with the aim of minimizing any differences between IFRS and U.S. GAAP.”

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