Accounting Boards Try Again on Leases ; Revamped Proposal for Valuing Assets Would Still Be a Radical Change

By Norris, Floyd | International Herald Tribune, May 17, 2013 | Go to article overview

Accounting Boards Try Again on Leases ; Revamped Proposal for Valuing Assets Would Still Be a Radical Change


Norris, Floyd, International Herald Tribune


The rule would require many companies to report vastly larger amounts of assets and liabilities than they do now.

Rule makers around the world issued a new proposal on accounting for leases Thursday that backs off from some of the most controversial aspects of an earlier version. But it would still represent a radical change in accounting by requiring many companies to report vastly larger amounts of assets and liabilities than they do now.

Under existing rules, companies are generally able to classify virtually all leases as operating leases and keep them off their balance sheets, something regulators and accounting critics have long denounced. Some airlines, for example, lease all their airplanes and show no airplane assets on their balance sheets and no liabilities for the money they are committed to pay for those planes in the future.

"The development of an improved standard for leasing is vital," said Hans Hoogervorst, chairman of the International Accounting Standards Board. "At present, investors must take an educated guess to determine the hidden leverage from leasing."

Under the proposal, issued jointly by the international board, which sets rules for many countries around the globe, and by the Financial Accounting Standards Board, which writes the rules in the United States, an airline entering into a lease for a plane would show an asset of the right to use the plane and an equal liability based on the current value of the lease payments it has promised to make. That accounting would be similar to what it would show had it borrowed money to buy the plane.

"The proposal is responsive to the widespread view of investors that leases are liabilities that belong on the balance sheet," said Leslie F. Seidman, the chairwoman of the F.A.S.B., adding that the two boards "have worked together to develop a revised, converged proposal to address the inadequacies of current lease accounting and disclosures."

Many accountants have agreed for decades that lease accounting needs to be reformed, but accounting rule-making is a slow process, particularly when there is sharp opposition from companies.

In 1992, the Accounting Standards Board, which set British accounting rules, said it was considering changing the leasing rules, prompting howls of protest. The rule was not changed, and nine years later the board's departing chairman, Sir David Tweedie, lamented that fact. "I would have liked to have gone into lease accounting, which is a mess," he said. "Airlines have got hardly any aircraft on the balance sheets."

Mr. Tweedie became the chairman of the I.A.S.B. in 2001, but it was not until 2006 that lease accounting was added to that board's agenda, as well as to the agenda of the American board. …

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