Uh, oh. In part four of the Journal of Accountancy’s interview with FASB chair Leslie Seidman, she made it clear that the comments at the FASB’s website about their meeting in February do not mean they are changing the direction they’re going on leases.
They still intend to bring most material leases on to the balance sheet.
She explained in the interview that the board’s thoughts that having an other-than-financing lease category will only affect the income statement recognition.
A current capital lease amortizes the asset (which was usually calculated using present value concepts) over the useful life. The capital liability is amortized down on an interest method basis with part of the payment going to interest expense. That appears to be the same method that will be used for financing leases.
From her comments in the interview, it looks like an other-than-financing lease would have a straight-line recognition over the life of the lease instead of the interest amortization method. My guess (or should I say my current assumption!) Is that the right-to-use asset and liability would be the sum of total payments to be made. As lease payments are made in the future they would be applied in full to the liability. Thus the interest amortization approach would go away for this type of lease.
I went back to the summary of board decisions from February and reread the discussion on leases. Looks like I made a really huge assumption. That assumption was an other-than-financing lease would look like a current operating lease. Not so according to the interview. I am humbly reminded of the saying about making assumptions.
The comments in the summary of board decisions are absolutely consistent with her comments in the interview. The difference? My assumptions.
Looks like we are in for a huge amount of work on leases.
Other pertinent comment related to leases is the board still has a target to release a final document in the second quarter of 2011.