The Equipment Leasing and Finance Association, a trade association that represents companies in the equipment finance sector, had been pushing back against some of the earlier versions of the new lease accounting standard that were proposed in recent years, but it is satisfied with the final standard.
“We’ve been at this a long time, and the standard that’s just been announced today and issued is a far cry from where it was a few years ago,” ELFA president and CEO Ralph Petta told Accounting Today. “Even before that there were some conceptual models that were being kicked around that were very, very detrimental to the industry. We’re delighted that the FASB has been very open and basically took a lot of the feedback that they received from organizations like ours, businesses, lessees, lessors, the analyst community, and they really did what they thought was in the best interest of commercial enterprises here in the United States who essentially book a trillion dollars’ worth of lease transactions, so we’re gratified that things came out the way they did.”
FASB unveiled the long-awaited standard Thursday after a decade of work on trying to converge it with the International Accounting Standards Board with the goal of having operating leases appear on company balance sheets (see FASB Releases Lease Accounting Standard).
“Leases are going to go on balance sheets,” said Petta. “That’s an accounting construct, but the good thing is the P&L, the income statement doesn’t change, so there’s still going to be a two-lease model here in the United States, which is not the case in the rest of the world. The IASB adopted the one-lease model where are all leases are treated as finance leases, so they preserved what we think is the best of lease accounting, which has been for the past 30 years of so, which is differentiating between the two types of lease transactions. We’re pleased that things came out the way they did. A lot of hard work and a lot of people doing things and pulling in the same direction, which was a good thing.”
FASB worked closely with trade associations, accounting groups and other constituents while readying the new standard.
“I think the standards have benefited significantly from the constructive feedback that we’ve had from all our constituents, both preparers doing that through associations or directly, as well as investors,” said FASB vice chair Jim Kroeker. “As you would expect when you’re making change, not everyone is at the outset as happy with the change as everyone else. We will continue to be available for outreach particularly as it relates to successful implementation.”
Petta doesn’t believe the equipment leasing companies will have much trouble adjusting to the new standard.
“It won’t be a very onerous process,” he said. “The FASB has given U.S. companies a few years to transition to the new rules, so public companies will have until 2019, and private companies will have to come online in 2020, so there will be time to transition to the new rules. Some of our member companies have already started looking at that, and we have been pretty diligent in keeping our members, the lessor community, abreast of all the changes. Oddly enough, we hear some anecdotal information that there are some pockets of lessees and customers of our members that really haven’t been paying much attention until the actual rules were issued, so those people who haven’t really been paying attention, are going to have to do so because it’s pretty much a done deal.”
But Petta doesn’t anticipate much change in economic behavior or the popularity of equipment leases. “The good thing is we’re heartened by the fact that we do not expect behavior to change,” he said. “When companies perform a lease vs. buy analysis, all of the reasons that lease financing makes a lot of sense in the United States, and the reason that there’s a trillion-plus dollars in new business volume transacted every year, is because there are a lot of positives and a lot of advantages to choosing a financing product over a straight debt or sale product. We really don’t anticipate that the rules are going to impact lessee behavior in selecting the financial product that they use to acquire equipment.”