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Lease Accounting: One Model or Two?

Posted 8:44 PM by

In August 2010, the Financial Accounting Standards Board and the International Accounting Standards Board (the Boards) jointly issued exposure drafts tied to accounting for leases. (The FASB exposure draft can be found here, and the IASB exposure draft can be found here.) The exposure drafts are an attempt to ensure that assets and liabilities arising under lease arrangements are recorded in the statement of financial position.

The exposure drafts have received a significant amount of response as the impacts are far reaching across various industries, including many in the manufacturing and distribution industries.  Generally speaking, the exposure drafts provide for one model that that would treat all leases as financing transactions, such that companies would recognize a liability to make lease payments and an asset for the right to use.

While the approach of this model has been generally accepted for long-term lease arrangements, a significant amount of push back has been received for short-term lease arrangements that many feel are more reflective of a simple rental agreement.  As a result, the FASB and IASB temporarily decided to work toward a two model approach that would provide an exception for certain short-term arrangements.

This decision has been reversed and the Boards are back to a one model approach.  While the Boards have agreed to consider presentation and disclosure implications, the two model approach is no more.  With an original goal of June 2011 for a final standard, considerations such as those described here have required an extension to December 2011.

About the Author
Jason Patch is a partner in Katz, Sapper & Miller’s Audit and Assurance Services Group and leads the firm’s Manufacturing and Distribution Services Group. Jason works with clients to ensure accurate financial reporting, keeping an eye on their bottom line, helping them avoid risk, and maximizing efficiencies. Connect with him on LinkedIn.

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