FASB/IASB Meeting News
The FASB and IASB today agreed to undertake a joint project designed to overhaul FAS 13, the lease accounting rules in place since 1976. There was unanimous agreement by the FASB that current rules are deficient. The proposed timetable for action is this: this year, the FASB staff is conducting research on the scope and implications of the project; in 2007, the Board will begin deliberations; in 2008, a Preliminary Views document will be issued and comment will be solicited from interested parties; in 2009, a formal Exposure Draft will be issued for comment, with final guidance released that year as well.
The Board wants to examine both lessee and lessor accounting, but is concerned that the complex issues involved in lessor accounting not delay progress on the project. Chairman Herz and at least one other member of the Board specifically mentioned that the issue of materiality for small ticket transactions would be taken into account as the Board deliberates and that the Board will consider the cost-benefit of any new rules change.
Both the FASB and IASB are in the process of assembling a working group of experts to assist the Board and staff as they work through and try to understand the issues involved. The Board has requested that the Equipment Leasing Association be represented on this work group and the association has agreed to do so.
Note: July 13, 2006 CFO.com
"Come December, companies will be required to recalculate their leverage leases if the timing of tax benefits affect corporate cash flows, says new guidance released Thursday by the Financial Accounting Standards Board. The FASB Staff Position (FSB) revises FASB Statement No. 13, Accounting for Leases.
"FAS 13 requires that a lease should be recalculated when a change in an important assumption affects net income. One such change would be the timing of cash flows relating to income taxes generated by a leveraged lease.
"In its guidance, FASB notes that many leveraged leases provide significant tax benefits to the lessor, and leveraged lease accounting is significantly influenced by the cash flows between that lease holder and the taxing authority. So, a change in the timing and amount of those cash flows would be expected to change the economics of the transaction, and therefore should be reflected in the financial statements of the lessor.
"The FSB 'reflects our belief that accounting should fully reflect economics of a transaction,' commented FASB Member Edward Trott in a statement announcing the amendment. In other words, explained Trott, any changes in either the timing or amount of the cash flows associated with leveraged lease transactions will be "now be properly reflected in the financial statements."