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M3-gribble - The Future of Lease Accounting Joint FASB/IASB...

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Unformatted text preview: The Future of Lease Accounting Joint FASB/IASB Leasing Project 2 PricewaterhouseCoopers Agenda History Perceived Problems with Current Model Executive Summary of Discussion Paper Key Issues for Discussion Our Point of View Timing Key Issues for Discussion Scope Basic Model Lease Term Contingent Cash Flows Financial Statement Presentation Changes in Estimates Lessor and Sublease Accounting 3 PricewaterhouseCoopers History In July 2006, the FASB and IASB agreed to add a joint project on lease accounting to their accounting project agendas. The project was intended to build on previous work contained in the 1999/2000 white paper, G4+1 Special Report, Leases: Implementation of a New Approach. The SEC Staff specifically stated that lease standards should be rewritten in its 2005 report on off-balance sheet transactions. A Discussion Paper, Leases: Preliminary Views , was issued in March 2009. 4 PricewaterhouseCoopers Perceived Problems with Current Accounting Current lease accounting is considered broken most significantly for lessees. Common example: A commercial airline with no airplanes on its balance sheet. Users believe operating leases give rise to assets and liabilities that should be recognized in the financial statements of the lessee. The existence of two very different models (operating v. finance leases) means similar transactions can be accounted for in different ways, reducing comparability. The current accounting is complex and the dividing line between operating and finance leases is a bright line rule rather than being principles-based. The current accounting is conceptually flawed for a simple lease, the definitions of both an asset and a liability clearly are met. 5 PricewaterhouseCoopers Executive Summary of Discussion Paper The proposal would significantly change lessee accounting, including the elimination of operating lease accounting (lessees would treat all leases in a manner similar to how capital leases are accounted for today). The proposal would require a lessee to reassess its estimates of the lease term and cash flows at each reporting date based on current facts and circumstances. A final standard is expected in 2011. Due to the long-term nature of some leases, and the expectation that nothing will be grandfathered at transition, companies should understand the potential impact now. The proposal is expected to have the greatest impact on lessees of significant amounts of "large-ticket" items, such as real estate, manufacturing equipment, power plants, aircraft, railcars and ships. However, the proposal would also affect virtually every company, including those that lease automobiles, computer equipment, copiers, office furniture and telecommunications equipment. 6 PricewaterhouseCoopers Executive Summary of Discussion Paper Accounting Impact If adopted as proposed, the right-of-use model will significantly change financial...
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This note was uploaded on 01/14/2012 for the course ECON 121 taught by Professor Mcdevitt during the Winter '10 term at UCLA.

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M3-gribble - The Future of Lease Accounting Joint FASB/IASB...

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