What’s in the Lease Accounting Exposure Draft?

A quick guide to FASB’s proposed standards from Bloomberg BNA

In for the long term In for the long term

All leases of personal and real property with terms longer than 12 months and no right to renew would be capitalized, i.e., brought onto the balance sheet of the lessee.

Short-term leases can stay off the balance sheet Short-term leases can stay off the balance sheet

The new leasing proposal allows an election to use the existing operating lease method (off-balance-sheet to lessees) for lease transactions of 12 months or less.

New distinctions New distinctions

The current distinction between operating leases and capital leases would be replaced by a new so-called asset/liabilities approach in which the right to use a specified asset (the asset that is capitalized) is conveyed, for a period of time, in exchange for the obligation to pay rent (the liability that is capitalized).

What will be left? What will be left?

The proposal introduces a new dual expense recognition and balance sheet presentation approach in which there are two types of leases for lessees, based on “consumption” of the value of the underlying asset being leased.

The first new type of lease … The first new type of lease …

Under this new classification, lessees would report a straight-line lease expense in their income statement for leases that do not consume a more than insignificant portion of the asset (aka Type B leases). This would include most real estate leases. Lessors of Type B leases would use the operating lease method of accounting.

… And the second … And the second

For leases (aka Type A leases) that are deemed to consume more than an insignificant portion of the asset -- such as trucks, tractors, planes, and so on -- the lease expense would be front-loaded, similar to interest in a mortgage or capital lease accounting. This would include most equipment leases. Lessors of Type A leases would use the Receivable and Residual method of accounting that is very similar to direct finance lease accounting under current GAAP.

History History

Leveraged lease accounting in the U.S. would be eliminated under the proposed rule.

Waiting for the response Waiting for the response

The comment period deadline for the proposed Exposure Draft is Sept. 13, 2013. The boards will then review all comments and re-deliberate if necessary.

The timeline The timeline

The boards hope to finalize the rule in 2014, with an effective date of 2017 when lessors and lessees have to transition to the new rule.

To learn more about the new lease accounting proposals, attend Bloomberg BNA’s webinar, “Changes in Lease Accounting: Analysis and Implications for Your Business” on Thursday, June 27. To register, click here.



2016 Summer Reading for Accountants

Short, useful reads for your summer vacation

View the slideshow >>


12 Questions to Ask Your Cloud Provider

Moving to Web-based apps? Get answers to these questions first.

View the slideshow >>


6 Tax Tips for Students Working Summer Jobs

Along with establishing a good work ethic and building time and financial management skills, a summer job also means learning about the obligatory duty of paying taxes. Here are some tips for tax clients with children working summer jobs from Abigail Schaffer, a staff accountant at Kessler Orlean Silver & Co.

View the slideshow >>


Tax Tips for the Armed Forces

The IRS has put together its annual selection of advice for members of the military

View the slideshow >>


6 Tips for Retaining Millennials

Bruce Tulgan shares the best ways to keep your young stars

View the slideshow >>


Top 15 Accounting Firm Taglines

Our favorite firm slogans from around the CPA profession.

View the slideshow >>


Top 10 Challenges of Managing Multiple Accounting Offices

Consolidation in the accounting industry has resulted in more accounting firms juggling multiple locations. Maureen Schwartz, executive director of BKR International, provides a top 10 list of challenges as well as guidance for multiple-office practice management.

View the slideshow >>


What to Do When Your Identity Has Been Stolen

A step-by-step guide for victims of ID theft (and their advisors)

View the slideshow >>


The 'Tax Warrior' Creed

Philadelphia firm Drucker & Scaccetti creates a warrior mindset

View the slideshow >>


10 Tips for Fighting Tax-Related ID Theft

Constant vigilance is the price of fighting online fraud

View the slideshow >>