A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases
French National Center for Scientific Research (CNRS)
Robert J. Bloomfield
Cornell University - Samuel Curtis Johnson Graduate School of Management
Jonathan C. Glover
Columbia Business School
University of Alberta - Department of Accounting, Operations & Information Systems
James A. Ohlson
Hong Kong Polytechnic University - School of Accounting and Finance
Stephen H. Penman
Columbia Business School - Department of Accounting
Waseda University - Graduate School of Commerce
T. Jeffrey Wilks
Brigham Young University
February 23, 2011
Accounting Horizons, Vol. 25, No. 4, 2011
University of Alberta School of Business Research Paper No. 2013-681
Johnson School Research Paper Series No. 16-2011
The International Accounting Standards Board (IASB) and The Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-to-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications.
We are sympathetic to the standard setters concern that the current lease standard is being manipulated improperly by managers resulting in large amount of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios.
This comment was developed by the Financial Accounting Standards Committee of the American Accounting Association and does not represent an official position of the American Accounting Association.
Number of Pages in PDF File: 16
Date posted: February 28, 2011 ; Last revised: June 11, 2013