The leader of a trade association representing the equipment finance sector criticized the new accounting standards for leasing contracts proposed by the Financial Accounting Standards Board and the International Accounting Standards Board this week.

William G. Sutton, president of the Equipment Leasing and Finance Association, noted that the FASB and IASB exposure draft would dramatically revise the current lease accounting standards (see Accounting Boards Propose New Leasing Standards).

“The ELFA supports the FASB and IASB as they seek to establish a sound, workable accounting standard that applies to the assets and liabilities arising from lease transactions,” he said in a statement. “The association also supports worldwide convergence of IFRS and U.S. GAAP. We find, however, that the lease accounting model as proposed in the long-awaited exposure draft is unduly complex and will impose a compliance burden on lessees that will not result in a significant improvement in the quality or reliability of financial information.”

As part of the global effort to establish uniform corporate financial accounting standards, FASB and the IASB have been working jointly to develop a new model for the recognition of assets and liabilities arising under lease contracts that would supersede Statement on Financial Accounting Standards 13 under U.S. GAAP and International Accounting Standard 17 in IFRS. The proposed new standard is expected to affect the balance sheets of all companies subject to U.S. GAAP and International Financial Reporting Standards who use leasing to acquire assets or as part of their asset management strategy.

“Lease financing is a critical means of capital formation for U.S. businesses through the acquisition and investment in capital plant and equipment and real estate,” said Sutton. “The ELFA’s overriding concern is that any standard that replaces the SFAS 13 should improve the clarity in financial reporting of these transactions without undue burden on businesses from an accounting or a financial standpoint.”

Sutton’s group plans to submit a formal comment letter to FASB and the IASB detailing the association’s specific concerns before their Dec. 15 comment deadline. The association will ask the national and international accounting standards-setting bodies to address a number of concerns about the proposal, including issues related to lessor accounting.

“The $518 billion equipment finance sector is an engine for U.S. economic growth,” he said. “Despite the challenges presented by some of the concepts embodied in the exposure draft, the proposed lease accounting rules do not diminish the myriad of benefits enjoyed by companies who choose to acquire the productive assets they need through equipment leasing and financing.”

He added that his group considers the issue so critical that it has assembled an industry and association team, coordinated by ELFA COO Ralph Petta, which has been monitoring the standard-setting process for leases, and plans to continue to analyze and communicate the potential impact of the changes to the boards, the lessor community and other stakeholders.

More information about the lease accounting proposal is available on the ELFA website at http://www.elfaonline.org/ind/topics/Acctg/.

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