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Leases Accounting Project

By William Bosco

Following their recent meetings in March, the FASB and IASB remain at odds on the key issue of how lessees should account for all leases once they are recognized on a balance sheet. The debate is over using one method (capital lease Type A accounting) to account for all leases or using two methods, which would retain the GAAP's current distinction between capital and operating leases for expense purposes. Under this approach, the former operating leases would retain straight line rent expense.

The Boards are also at odds as to whether to extend exemptions for small leases and leases of non-specialized assets, differing on the approach to lessor accounting. The Boards, however, are much closer on that topic (and are closer to a converged answer) than they are on lessee accounting. The Boards will continue to work toward a conclusion of the project, but it appears they may have important differences. We may see two standards issued that are converged for Day 1 lessee accounting ' that is that all leases are capitalized ' but not converged on subsequent accounting for lessees and the exemptions for certain small non-specialized asset leases. The next step will be to meet again, but no date was set for that meeting.

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