The Financial Accounting Standards Board is likely to formally add a project on lease accounting to its agenda this week, according to published reports.

Lease accounting refers to how companies account for buildings or equipment that they lease instead of buy. Any changes are expected to face loud opposition from the equipment and real estate leasing industries.

Current rules allow companies to lease items without having to record either the asset, or the obligation to make lease payments, on their balance sheets. Companies can record leases in financial statement footnotes, usually resulting in lower debt, larger returns on assets, and an increase to earnings due to lower depreciation expenses than if the purchase was made outright.

The vote is one of the first steps in an overhaul that could potentially require companies to recognize leases on corporate balance sheets instead of financial statement footnotes.

FASB Chairman Bob Herz said in May that it could take two or more years to complete work on a new accounting standard for leases, and that it would be a joint project with the International Accounting Standards Board. In June 2005, the Securities and Exchange Commission released a report on off-balance sheet accounting that suggested lease standards should be rewritten.

Previously on WebCPA:

Michigan Professor Gets Seat at FASB Table (May 18, 2006)

SEC Issues Recommendations for Lease, Pension Standards (June 17, 2005)

Report: Lease Accounting Issues Dominate Latest Internal Controls Weaknesses (May 12, 2005)

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