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ELFA on Leasing Revisions
- 7/22/2009These revisions are contained in the discussion paper, Leases: Preliminary Views (the Discussion Paper) as part of the FASB’s and IASB’s (the Boards) lease accounting project (the Project). The Discussion Paper serves as a roadmap to an eventual standard that will replace Statement of Financial Accounting Standards No. 13, Accounting for Leases (FAS 13), governing the accounting for commercial lease transactions in the United States.
“We support the Boards as they seek to establish a sound, workable accounting standard that applies to the assets and liabilities arising from lease transactions,” says ELFA President Kenneth E. Bentsen, Jr. “We find, however, that the lease accounting model as proposed 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. The model seems to be overly concerned with preventing potential abuse, rather than accurately reporting the economic aspects of leasing transactions,” says Bentsen.
“Further, we are of the view that the proposed model is now so close to current GAAP that it would be more efficient to merely amend IAS 17/FAS 13 to capitalize operating leases and leave capital lease accounting and the profit and loss statement (P&L) accounting for operating leases unchanged,” Bentsen says.
“We also believe the proposed modifications of the accounting for capital leases and the proposed income statement treatment for operating leases distort the financial statement presentation of these transactions and do not faithfully represent the economic effects of lease transactions presented in the financial statements of lessees, and we urge the board not to de-link the project but to include lessor accounting in the scope of the project. We are committed to helping create sound and workable rules that reflect the economic substance of lease transactions to improve the clarity in financial reporting,” Bentsen says.
Specific Concerns:
- The proposed rules do not reflect the economic differences between right to use leases (rental contracts) and right of ownership leases (a purchase financed by a loan) so that representational faithfulness in financial reporting will not be achieved.
- The proposed rules are overly complex.
- Contingent rents should not be estimated and capitalized unless they are “disguised” minimum lease payments.
- A de minimus exception is needed.
- Lessor accounting must be addressed.
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