The Financial Accounting Standards Board is expected to release its long-awaited lease accounting standard Thursday.
FASB and the International Accounting Standards Board have been developing the standard for 10 years as one of their major convergence projects. The IASB released its somewhat different version of the standard last month (see IASB Releases Lease Accounting Standard). While the two standards differ in some respects, they will both add operating leases to company balance sheets.
“I think that the update to the standard is going to have a significant impact on many companies specifically related to adding both assets and liabilities to the balance sheet,” said Jared Rosen, director at the Baltimore accounting firm Ellin & Tucker. “Everything that’s now classified as an operating lease and only shows up in the financial statements as a rent expense and disclosure item will now be on the balance sheet.”
The final standard will resolve lingering uncertainty for many companies, according to Sean Torr, a director in Deloitte’s Advisory practice.
“I think the final iteration of the standard makes it very real now for U.S. companies,” said Torr. “There had been a lot of uncertainty around timing and the nature of this lease standard. Now with the release of the U.S. GAAP version it becomes more real and final for companies, so it serves as a milestone for companies to really start getting serious around their implementation efforts. I think many companies, just because of the long deliberation cycle that has been held around leasing, have adopted a wait and see mode to addressing the standard. Now that we have a final standard I think companies are realizing that this is going to be a big effort, and it’s time to start preparing.”