Standard Setters Still at Odds over Lease Project
At their July 23rd joint meeting, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) resumed efforts to converge U.S. GAAP and IFRS. In particular, the top focus was FASB’s Proposed Accounting Standards Update (ASU) No. 2013-270, Leases (Topic 842), and IASB’s Exposure Draft (ED) No. 2013-6, Leases. Conflicted on recognizing the gains for sale-leaseback transactions, the boards continue to have opposing attitudes toward their lease accounting project. During the meeting, FASB agreed to allow sellers of assets to recognize the full gain from the time of the transaction. On the conflicting end, IASB agreed to let sellers defer a part of the gain to reflect the lease’s term.
Such differences reflect positions the boards took in March, when FASB opted to keep U.S. GAAP’s current distinction between capital and operating leases. While both leases will be part of lessees’ balance sheets, “Type A” payments on capital leases would be expensed in the earlier years to reflect the larger interest amount contained in the payments at that point. Conversely, lease payments on operating leases would be spread out more evenly. This would cause operating leases to have a smaller impact on earnings than capital leases in the early part of the term.
Although the boards differ on other converging matters like valuation of financial instruments and inventory and asset impairment, FASB and IASB are working to resolve differences on the leasing project. However, votes from the July 23rd meeting reflect an earlier prediction that FASB and IASB coming to a middle ground will be difficult.