FASB and IASB have released a new draft of the changes to lease accounting.
I haven’t worked through the ED yet. I’m guessing at this point you are just wanting the news flash.
So in extremely condensed terms, here’s the deal:
- Essentially all leases will be brought on the balance sheet.
- Leases with a term of one year or less won’t be capitalized.
- Leases of longer-lived assets, such as real estate, show straight line amortization (type B).
- Leases that use up much of the value, such as equipment, show interest method amortization of liability (type A).
- If lease rate is adjusted by an index such as CPI the asset and liability will be adjusted each year.
We will soon be talking about Type A and Type B leases.
Effective date isn’t mentioned in the ED but speculation is maybe 4 years out.
The ED is available here. It’s 343 pages long, so get a big cup of coffee before you sit down to read it.
Here are two articles summarizing the new rules:
- JofA: Much-awaited lease proposal includes dual-recognition approach
- DealBook: Significant Changes Proposed in Lease Accounting
Here is one of the many rebuttals that caught my eye:
- CFO magazine: Lease-Accounting Rules: Tinker, Don’t Trash