After much fanfare with the initial Exposure Draft in late 2010, the proposed changes to the Standard for Lease Accounting by the FASB and IASB, seem to have fallen off the radar. Responding to the hue and cry of thousands of comment letters, predictions of economic collapse from the real estate and equipment leasing industries, and even a letter from members of the US Congress, the accounting standards organizations have been engaged in over 2 years of public outreach and re-deliberations.
Recent information from industry sources indicates that the revised Standard may be forgotten, but is not gone. The Boards are expected to issue a “Fatal Flaw” draft to select accounting firms as a final proof of the Revised Exposure Draft which is expected to be released publicly in the late first quarter of 2013. Based on a required comment period and re-deliberation, experts expect the final Standard to be in place in early 2014, with the expected year of transition being 2017. If that is the case, Companies would need to do comparative reporting.
The original premise of the new Standard was to promote more transparency in bringing future obligations of a company onto the financial statements. The placing of these lease obligations on the Balance Sheet is a concept that met with early acceptance. The presentation of the amortization of the Right of Use assets and corresponding liabilities on the Income Statement has fostered most of the debate. As originally presented in the Exposure Draft, the Boards had recommended a “finance model” approach to amortization of the liability, which had the effect of front loading interest expense, when compared to the current straight line methodology of reporting Rent Expense. This approach had the potential of significantly altering financial results, as would the original requirements for determining the “likely term” of the Lease.
Over the last 26 months the Boards have met with the various constituencies to debate the impact and value of revising the Standard. While no final pronouncements have been made, there are a number of decisions that have come out of these meetings that provide a framework of what might be expected.
Lou Battagliese of Jackson Cross Partners, whose Advisory Group works with major corporations in preparing for the pending changes will outline the current status of discussions, expected impacts to Tenants and Landlords, as well as the prospective timeline for implementation at the Company’s Annual Real Estate Forecast Breakfast on Tuesday, December 18th at the Hotel DuPont in Wilmington, Delaware.